<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PERITUS SOFTWARE SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MASSACHUSETTS 7371 04-3126919
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
OF INCORPORATION OR
ORGANIZATION)
304 CONCORD ROAD
BILLERICA, MASSACHUSETTS 01821-3485
(508) 670-0800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ALLEN K. DEARY
VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
PERITUS SOFTWARE SERVICES, INC.
304 CONCORD ROAD
BILLERICA, MASSACHUSETTS 01821-3485
(508) 670-0800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
PETER B. TARR, ESQ. MARK J. MACENKA, ESQ.
HALE AND DORR LLP TESTA, HURWITZ & THIBEAULT, LLP
60 STATE STREET HIGH STREET TOWER
BOSTON, MASSACHUSETTS 02109 125 HIGH STREET
TELEPHONE: (617) 526-6000 BOSTON, MASSACHUSETTS 02110
TELECOPY: (617) 526-5000 TELEPHONE: (617) 248-7000
TELECOPY: (617) 248-7100
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par 3,335,000
value per share....... shares $12.00 $40,020,000 $12,128
</TABLE>
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(1) Includes 435,000 shares which the Underwriters have the option to purchase
from certain Selling Stockholders to cover over-allotments, if any. See
"Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS BE ACCEPTED TO BUY PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 14, 1997
2,900,000 SHARES
[LOGO]
COMMON STOCK
Of the 2,900,000 shares of Common Stock offered hereby, 2,800,000 shares are
being sold by the Company and 100,000 shares are being sold by a Selling
Stockholder. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholder. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $10.00 and $12.00 per share. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "PTUS."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Stockholders
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<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
Total(3).......... $ $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $875,000.
(3) Certain Selling Stockholders of the Company have granted to the
Underwriters a 30-day option to purchase up to 435,000 additional shares of
Common Stock solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to Public will total $ , the
Underwriting Discount will total $ and the Proceeds to Selling
Stockholders will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the offices of Montgomery Securities on or about , 1997.
-----------
MONTGOMERY SECURITIES
WESSELS, ARNOLD & HENDERSON
H.C. WAINWRIGHT & CO., INC.
, 1997
<PAGE>
Inside Front Cover:
The inside front cover depicts a computer screen shot of the Peritus
AutoEnhancer/2000 Software. Underneath the heading is the following text: The
Peritus AutoEnhancer/2000 software automates identification of date-sensitive
variables, correction of source code and generation of programs that convert
data and create bridges. The screen shot labels the tasks, steps and functions
depicted on the screen. There are a number of arrows emanating from the screen
that describe the various functions in the Company's AutoEnhancer/2000 software:
Segmentation:
-------------
Load the software to be renovated into the renovation center, put it under
source code control and verify its completeness.
Identification:
---------------
Convert the source code to PIL, augment the seed list using the adaptive
seed generator and propagate the seed information through the software to
identify the date-sensitive variables.
Correction:
-----------
Correct the source code according to the correction strategy selected (data
expansion, logic correction or a hybrid).
Bridge:
-------
Build the required bridges by generating wrappers, filters and converters.
Adaptation:
-----------
Identify and annotate the date-sensitive job control and note any record
size changes.
Verification:
-------------
Reconcile the correction audit trail and compare the compile results from
the pre- and post-renovation source code.
Packaging:
----------
Package the renovated source code and generated source code for return to
the client.
The Powered by Peritus logo is in the lower left corner of the page.
Gatefold Graphic
The gatefold graphic is a matrix composed of rows and columns and entitled
"Year 2000 Mass Change Renovation -- Powered by Peritus." The left column of the
matrix identifies each of the four rows: (i) Phases, (ii) Tasks, (iii)
Technology and (iv) Capacity. The first row (Phases) identifies the phases of a
year 2000 renovation: assessment, correction and test. The second row (Tasks)
describes the tasks of each phase: (i) under assessment--perform inventory,
analyze business exposure, resolve dispositions, analyze impact and plan
renovation; (ii) under correction--identify date-sensitive variables, correct
code, generate bridges and generate data converters; and (iii) under test--
perform unit tests, perform system tests and deploy into production. The third
row (Technology) describes the technology with the following text: The
AutoEnhancer/2000 software is designed to be interoperable with third party
assessment, extraction and testing tools. The diagram indicates that the
technology for an assessment phase is provided by third party assessment tool
providers, the technology for the correction phase (and part of the assessment
and test phases) resides with Peritus AutoEnhancer/2000 and the technology for
the test phase resides with third party test tool providers. The last row
(Capacity) describes the capacity of a year 2000 renovation with the following
text: Peritus licenses its AutoEnhancer/2000 software directly and indirectly to
end users and value added integrators for their use in addressing their year
2000 needs. As of April 30, 1997, the AutoEnhancer/2000 software was installed
in more than 45 installations. The last row of the graph shows graphical
representations of various renovation centers: clients, value added integrators
(VAI's) and Peritus.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE SHORT COVERING
TRANSACTIONS, OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and the Notes thereto, appearing elsewhere in this Prospectus. Except as
otherwise noted herein, all information in this Prospectus (i) reflects the
filing prior to the closing of this offering of Articles of Amendment to the
Company's Articles of Organization redesignating the Company's Class A Voting
Common Stock as Common Stock (the "Common Stock"), (ii) gives effect upon the
closing of this offering to the lapse of the Redeemable Common Stock Right and
the conversion of the Company's Class B Non-Voting Common Stock (the "Class B
Common Stock"), Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock (together, the "Convertible Preferred Stock") into an aggregate
of 3,822,903 shares of Common Stock and (iii) assumes no exercise of the
Underwriters' over-allotment option. See "Description of Capital Stock,"
"Underwriting" and Note 10 of Notes to the Company's Consolidated Financial
Statements.
THE COMPANY
Peritus Software Services, Inc. ("Peritus" or the "Company") provides
software products and services that enable organizations to improve the
productivity, quality and effectiveness of their information technology ("IT")
systems maintenance or "software evolution" functions. The Company's solutions,
which employ software tools, methodologies and processes, are designed to
automate the labor-intensive processes involved in conducting "mass change" and
other software maintenance tasks. In 1996, the Company released its first
software product, its AutoEnhancer/2000 software, which is aimed at the most
pressing mass change challenge, the "year 2000 problem." The Company licenses
this software directly to end users as well as through consultants, systems
integrators (together, "value added integrators") and distributors. The Company
also provides software maintenance outsourcing services to large organizations
that seek to enhance the productivity of their IT systems and application
software maintenance functions.
Organizations worldwide are faced with the challenge of modifying, enhancing
and adapting their IT systems and evolving their software to respond to a
changing and more competitive business environment. This challenge has
increased with the broadening complexity of IT and the continued evolution of
mainframe systems, as well as the advent of distributed, client/server
computing and the proliferation of third-party enterprise software
applications. One of the most crucial software evolution challenges facing IT
departments is the cost-effective implementation of mass changes to application
systems and their associated databases. Examples of mass change problems
include the year 2000 problem, which is the inability of certain computer
systems to properly interpret dates for the year 2000 and beyond, the European
Union's expected conversion to the euro currency, the anticipated expansion in
the number of digits in Japan's telephone numbers and the extension of the
number of digits or other characters in zip codes, product codes and account
numbers.
Industry analysts estimate that within the established worldwide IT
infrastructure, up to 200 billion lines of COBOL software code have been
written to support applications, many of which are mission-critical. In
addition, between 60% to 80% of the average annual IT application development
budget is spent on the maintenance of legacy applications. Although the
maintenance function within IT departments has received little management
attention historically, the impending year 2000 problem, with an estimated cost
of between $300 and $600 billion to fix, represents the most significant IT
maintenance challenge to date.
The Company's AutoEnhancer/2000 software is designed to automate the critical
correction phase of a year 2000 renovation. The Company has established
relationships with a number of leading value added integrators and
distributors, including Bull HN Information Systems Inc., a related party,
CIBER, Inc., Computer Sciences Corp., IBM Global Services and Keane, Inc.,
which license the Company's software tool for use in serving their clients. The
Company also licenses its AutoEnhancer/2000 software tool directly to end
users, including Metropolitan Life Insurance Company and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, which are
3
<PAGE>
employing the tool in-house as part of their year 2000 renovation efforts. In
May 1997, the Company entered into a non-binding letter of intent with VIASOFT,
Inc., a provider of enterprise application management solutions, to form a
joint marketing arrangement that would combine complementary product and
services offerings in a "best practice" suite of year 2000 solutions.
The Company's software maintenance outsourcing services are provided on a
fixed-fee basis and employ the Company's proprietary software tools,
methodologies and processes to generate productivity gains through the
automation of the software evolution process. Under maintenance outsourcing
engagements, the Company typically assumes responsibility for providing
software maintenance services for the client. Productivity gains can be
realized through contract pricing that guarantees reductions in IT costs and/or
measurable improvements in the quality and throughput of maintenance tasks. The
Company provides its outsourcing services pursuant to multi-year engagements to
a number of large organizations, including Advanced Micro Devices, Inc., Bull
HN Information Systems Inc., a related party, Computervision Corporation,
MicroAge Computer Center, Inc., NYNEX and Stratus Computer, Inc. The Company
also provides its productivity-enhancing maintenance techniques to clients that
maintain their source code in-house through the Company's technology transfer
services.
The Company's objective is to establish leadership in providing solutions
based on software tools and methodologies that significantly enhance the
productivity of the software evolution process. The Company intends to
accomplish this goal by developing additional product extensions from its core
technology that are aimed at specific mass change challenges. In addition, the
Company intends to leverage the relationships developed through its year 2000
products and services into long-term outsourcing engagements and future mass
change sales opportunites.
Peritus is a Massachusetts corporation organized in August 1991. The
Company's principal executive offices are located at 304 Concord Road,
Billerica, Massachusetts 01821-3485, and its telephone number is (508)
670-0800.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 2,800,000 shares
Common Stock offered by the Selling Stockholder.... 100,000 shares
Common Stock to be outstanding after the offering.. 12,779,023 shares (1)
Use of proceeds.................................... For (i) repayment of
certain existing
indebtedness, (ii)
research and development,
(iii) working capital and
other general corporate
purposes and (iv) possible
acquisitions.
Proposed Nasdaq National Market symbol............. PTUS
</TABLE>
- --------
(1) Based on the number of shares of Common Stock outstanding on April 30,
1997. Excludes an aggregate of 3,056,238 shares of Common Stock reserved
under the Company's 1992 Long-Term Incentive Plan, all of which shares were
subject to outstanding options as of April 30, 1997 at a weighted average
exercise price of $2.26. Also excludes an aggregate of 2,350,000 shares of
Common Stock reserved under the Company's 1997 Stock Incentive Plan, 1997
Director Stock Option Plan and 1997 Employee Stock Purchase Plan, which
plans were adopted by the Board of Directors on May 5, 1997 and will be
submitted to the stockholders of the Company for approval prior to the
closing of this offering. Also excludes 312,500 shares of Common Stock
issuable upon the exercise of outstanding warrants as of April 30, 1997 at
an exercise price of $1.60 per share. See "Management--Executive
Compensation" and Notes 10 through 14 of Notes to the Company's
Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ---------------
1992 1993 1994 1995 1996 1996 1997
----- ------ ------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Outsourcing services... $ 746 $1,798 $7,130 $16,400 $10,190 $ 2,244 $2,519
License................ -- -- -- -- 6,526 -- 4,144
Other services......... 117 433 742 2,105 2,519 404 1,196
----- ------ ------ ------- ------- ------- ------
Total revenue (1).... 863 2,231 7,872 18,505 19,235 2,648 7,859
Cost of revenue:
Outsourcing services... 517 841 4,700 9,602 8,488 2,234 2,045
License................ -- -- -- -- 162 -- 127
Other services......... 103 306 319 2,421 2,931 506 1,289
----- ------ ------ ------- ------- ------- ------
Total cost of
revenue............. 620 1,147 5,019 12,023 11,581 2,740 3,461
----- ------ ------ ------- ------- ------- ------
Gross profit (loss)...... 243 1,084 2,853 6,482 7,654 (92) 4,398
Total operating
expenses................ 357 889 2,209 6,189 12,398 2,762 3,942
----- ------ ------ ------- ------- ------- ------
Income (loss) from
operations.............. (114) 195 644 293 (4,744) (2,854) 456
Net income (loss)........ $(112) $ 188 $ 305 $ 55 $(4,921) $(2,712) $ 406
Pro forma net income
(loss) per share (2).... $ (0.46) $ 0.03
Weighted average shares
used to compute pro
forma net income (loss)
per share (2)........... 10,653 12,670
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED (3)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 5,022 $31,711
Working capital........................................ 8,406 35,095
Total assets........................................... 15,712 42,401
Long-term debt, net of current portion................. 1,476 533
Redeemable stock....................................... 12,546 --
Stockholders' equity (deficit)......................... (3,160) 37,018
</TABLE>
- --------
(1) Revenue (in thousands) from related parties in the years ended December 31,
1992, 1993, 1994, 1995 and 1996 and the three months ended March 31, 1996
and 1997 was $752, $824, $4,317, $10,124, $6,443, $1,179 and $975,
respectively. See the Company's Consolidated Financial Statements.
(2) See Note 2 of Notes to the Company's Consolidated Financial Statements for
an explanation of the determination of pro forma net income (loss) per
share.
(3) Gives effect to (i) the conversion of all outstanding shares of Class B
Common Stock and Convertible Preferred Stock into Common Stock and the
lapse of the Redeemable Common Stock Right upon the closing of this
offering, and (ii) the sale by the Company of the 2,800,000 shares of
Common Stock offered hereby, and the application of a portion of the
estimated net proceeds therefrom to repay certain indebtedness, at an
assumed initial public offering price of $11.00 per share, after deducting
the estimated underwriting discount and offering expenses. See "Use of
Proceeds."
5
<PAGE>
FORWARD-LOOKING STATEMENTS
Information contained in this Prospectus includes "forward-looking
statements" that are based largely on the Company's current expectations and
are subject to a number of risks and uncertainties. The Company faces many
risks and uncertainties, including without limitation those described in this
Prospectus under the caption "Risk Factors." Because of these many risks and
uncertainties, the Company's actual results may differ materially from any
results presented in or implied by the forward-looking statements included in
this Prospectus.
----------------
Peritus is a registered trademark of the Company, Automate: 2000 is a
registered service mark of the Company and AutoEnhancer/2000 is a trademark of
the Company. Other trademarks and service marks used in this Prospectus are the
property of their respective owners.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Common Stock offered hereby.
LIMITED OPERATING HISTORY; NET LOSS
The Company was founded in August 1991 and began operations in 1992. Most of
the Company's revenue to date has been attributable to software maintenance
outsourcing and other services, and the Company had no license revenue prior
to 1996. The Company's software maintenance AutoEnhancer/2000 software, which
the Company anticipates will provide the principal source of new license
revenue for the foreseeable future, has a limited history of client acceptance
and use. Accordingly, the Company has only a limited operating history upon
which an evaluation of the Company and its prospects can be based. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by organizations in their early stage of
development, particularly companies in new and rapidly evolving markets. To
address these risks, the Company must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
management and other employees, continue to upgrade its technologies and
commercialize products and services that incorporate such technologies and
achieve market acceptance for its products and services. There can be no
assurance that the Company will be successful in addressing such risks. The
Company incurred a net loss of $4,921,000 during 1996, and there can be no
assurance that the Company will achieve or sustain profitability.
POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE
The Company's revenue and operating results have varied substantially from
quarter to quarter. The Company's quarterly operating results may continue to
fluctuate due to a number of factors, including the timing, size and nature of
the Company's individual outsourcing, technology transfer, insourcing and
licensing transactions; unforeseen difficulties in performing such
transactions; the performance of the Company's value added integrators and
distributors; the timing of the introduction and the market acceptance of new
services, products or product enhancements by the Company or its competitors;
the relative proportions of revenue derived from license fees and professional
services; changes in the Company's operating expenses; personnel changes;
foreign currency exchange rates and fluctuations in economic and financial
market conditions.
The timing, size and nature of individual outsourcing, technology transfer,
insourcing and licensing transactions are important factors in the Company's
quarterly operating results. Many such transactions involve large dollar
amounts, and the sales cycle for these transactions is often lengthy and
unpredictable. In addition, the sales cycle associated with these transactions
is subject to a number of uncertainties, including clients' budgetary
constraints, the timing of clients' budget cycles and clients' internal
approval processes. There can be no assurance that the Company will be
successful in closing such large transactions on a timely basis or at all. In
addition, as the Company begins to derive a greater proportion of total
revenue from license revenue, the Company may realize a disproportionate
amount of its revenue and income in the last month of each quarter and, as a
result, the magnitude of quarterly fluctuations may not become evident until
late in, or at the end of, a given quarter. Accordingly, delays in product
delivery or in the closing of sales near the end of a quarter could cause
quarterly revenue and, to a greater degree, operating results to fall
substantially short of anticipated levels. Most of the Company's outsourcing
engagements are performed on a fixed-price basis and, therefore, the Company
bears the risk of cost overruns and inflation. A significant percentage of the
Company's revenue derived from these engagements is recognized on the
percentage-of-completion method, which requires revenue to be recorded over
the term of a client contract. A loss is recorded at the time when current
estimates of project costs exceed unrecognized revenue. The Company's
operating results may be adversely affected by inaccurate estimates of
contract completion costs.
The Company's expense levels are based, in part, on its expectations as to
future revenue and are fixed, to a large extent, in the short term. As a
result, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenue in relation to the Company's expectations would have an
immediate and material adverse effect on the Company's business,
7
<PAGE>
financial condition and results of operations. In addition, the Company plans
to increase operating expenses to expand its research and development, client
technical support and professional services staff, sales force and
administrative infrastructure. The timing of such expansion and the rate at
which new personnel become productive could cause material fluctuations in
quarterly and annual results of operations.
Due to all of the foregoing factors, the Company believes that period-to-
period comparisons of its operating results are not necessarily meaningful and
that such comparisons cannot be relied upon as indicators of future
performance. There can be no assurance that future revenue and operating
results will not vary substantially. It is also possible that in some future
quarter the Company's operating results will be below the expectations of
public market analysts and investors. In either case, the price of the
Company's Common Stock could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON YEAR 2000 MARKET
The growth in the Company's revenue in 1996 and the three months ended March
31, 1997 resulted primarily from increased demand for the Company's services
and products relating to resolution of the year 2000 problem. Although the
Company believes that the market for products and services relating to the
year 2000 problem will grow as the year 2000 approaches, there can be no
assurance that this market will develop to the extent anticipated by the
Company, if at all. Significant expense for sales and marketing may be
required to inform potential clients of the year 2000 problem and the need for
products and services addressing the problem. There can be no assurance that
the year 2000 solution providers will devote the resources necessary to
effectively inform potential clients of this problem or that potential clients
will understand or acknowledge the problem. In addition, affected
organizations may not be willing or able to allocate the resources, financial
or otherwise, to address the problem in a timely manner. Many organizations
may attempt to resolve the problem internally rather than contract with
outside firms such as the Company and value added integrators to which the
Company licenses its software products. Due to these factors, development of
the market for year 2000 products and services is uncertain and unpredictable.
If the market for year 2000 products and services fails to grow, or grows more
slowly than anticipated, the Company's business, financial condition and
results of operations could be materially adversely affected.
NEED TO DEVELOP ADDITIONAL PRODUCTS AND SERVICES
The Company currently generates significant revenue from, and devotes
significant resources to, products and services that address the year 2000
problem. Although the Company believes that the demand for its products and
services relating to the year 2000 problem will continue to exist for some
time after the year 2000, this demand will diminish significantly over time
and will eventually disappear. There can be no assurance that the Company will
be able to expand successfully its business beyond the year 2000 market.
Specifically, there can be no assurance that mass change markets such as those
associated with Europe's expected conversion to the euro currency or Japan's
anticipated telephone number expansion will develop or reach the size
currently estimated or that the Company will successfully develop or market
products and services capable of handling such mass changes. The failure to
diversify and develop additional products and services would have a material
adverse effect on the Company's business, financial condition and results of
operations.
CONCENTRATION OF CLIENTS AND CREDIT RISK; RELATED PARTY TRANSACTIONS
To date, the Company's revenue has been dependent on a few major clients,
Bull HN Information Systems Inc., a related party ("Bull"), Stratus Computer,
Inc. ("Stratus"), Computervision Corporation ("Computervision"), Metropolitan
Life Insurance Company ("Met Life"), IBM Global Services ("IBM") and Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). During the three
months ended March 31, 1997, Merrill Lynch, Met Life and IBM represented
approximately 22.7%, 13.4% and 10.6% of the Company's total revenue,
respectively. During 1996, Bull, Merrill Lynch and Stratus represented
approximately 29.0%, 14.6% and 12.1% of the Company's total revenue,
respectively. During 1995, Bull, Stratus and Computervision represented
approximately 50.3%, 12.9% and 11.0% of the Company's total revenue,
respectively. During 1994, Bull and Computervision represented approximately
51.7% and 29.3% of the
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Company's total revenue, respectively. In addition, the Company's ten largest
clients represented approximately 79.2%, 77.9%, 90.5% and 92.1% of the
Company's total revenue in the three months ended March 31, 1997 and the years
ended December 31, 1996, 1995 and 1994, respectively. Most of the Company's
contracts with its clients are terminable at will by either party upon written
notice in accordance with the terms of the contract, at which time payment for
services rendered to date is due. In addition, certain contracts provide for
limited price protection and related notice provisions that could require the
Company to adjust the pricing provisions of these contracts. To date, the
Company has not made any such adjustments. Although the Company's largest
clients have varied from period to period, the Company anticipates that its
results of operations in any given period will continue to depend to a
significant extent upon revenue from a small number of clients. There can be
no assurance that the Company's major clients will continue to purchase
products and services from the Company at current levels, if at all, or that
the Company will be able to replace revenue from such clients with revenue
from other clients. The loss of, or a significant reduction in revenue from,
any of the Company's major clients could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, with such a large percentage of the Company's revenue attributable
to a small number of clients, the loss of one or more major clients could have
a material adverse effect on the Company's liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," "Certain Transactions" and Note 8 of Notes
to the Company's Consolidated Financial Statements.
MANAGEMENT OF GROWTH
The Company's business has grown significantly in size and complexity over
the past three years. Total revenue increased from $7,872,000 in 1994 to
$19,235,000 in 1996. In addition, the number of employees increased from 130
to 229 during the same period, and the Company expects to hire additional
personnel during 1997. The growth in the size and complexity of the Company's
business as well as its client base has placed and is expected to continue to
place a significant strain on the Company's management and operations. Certain
members of the Company's senior management team have been with the Company for
less than a year, and the Company's senior management has had limited
experience in managing publicly traded companies. The Company anticipates that
continued growth, if any, will require it to recruit and hire a substantial
number of new development, managerial, finance, sales and marketing and
support personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in hiring or retaining such
personnel. The Company's ability to compete effectively and to manage future
growth, if any, will depend on its ability to continue to implement and
improve operational, financial and management information systems on a timely
basis and to expand, train, motivate and manage its work force. There can be
no assurance that the Company's personnel, systems, procedures and controls
will be adequate to support the Company's operations.
DEPENDENCE UPON THIRD-PARTY CHANNELS; POTENTIAL FOR CHANNEL CONFLICT
The Company offers its products and services directly to end users through
its sales force and indirectly through third-party channels, which include
value added integrators and distributors. Although sales through third-party
channels accounted for only 16.6% of the Company's total revenue in the three
months ended March 31, 1997, the Company expects to rely to a significant
degree on its value added integrators and distributors to provide sales and
marketing presence and name recognition, as well as the resources necessary to
offer large-scale, comprehensive software maintenance solutions, including
solutions relating to the year 2000 problem. Although the Company dedicates
significant resources to develop its indirect channels, there can be no
assurance that the Company will be able to attract and retain a sufficient
number of qualified firms to successfully sell and market its products. While
the Company has granted exclusive marketing rights to certain distributors in
defined geographic territories, these firms are not prohibited from entering
into similar arrangements with the Company's competitors. The failure of the
Company to maintain its current third-party channels or develop other third-
party channels, the Company's inability to adequately support the requirements
of its third-party channels, the development of competitive products and
services by the Company's value added integrators and distributors or the
entry by such firms into alliances with competitors of the Company would
substantially limit the Company's ability to provide its products and services
and, accordingly, would have a material adverse effect on the Company's
business, financial condition and results of operations.
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In May 1997, the Company entered into a non-binding letter of intent with
VIASOFT, Inc. ("VIASOFT") to form a joint marketing arrangement that would
combine complementary product and service offerings in a "best practice" suite
of year 2000 solutions. There can be no assurance, however, that the Company
and VIASOFT will enter into a final agreement, that any such marketing
arrangement will yield a suite of year 2000 solutions or that such solutions
will be accepted by the marketplace. There also can be no assurance that the
Company will enter into "best practice" marketing arrangements with any other
firm or that any such arrangements would be successful.
Selling through indirect channels may also limit the Company's contacts with
end users of its products and services. As a result, the Company's ability to
accurately forecast sales, evaluate client satisfaction and recognize emerging
client requirements may be hindered. The Company's strategy of selling its
products directly to end users and indirectly through third-party channels may
result in distribution channel conflicts. The Company's direct sales efforts
may compete with those of its indirect channels and, to the extent different
value added integrators and distributors target the same clients, they may
also come into conflict with each other. There can be no assurance that
channel conflicts will not materially adversely affect its relationship with
existing value added integrators or distributors or adversely affect its
ability to attract new value added integrators and distributors. In addition,
if the Company is successful in increasing product sales through third-party
channels, the Company expects that any material increase in the Company's
indirect sales as a percentage of total revenue may materially adversely
affect the Company's average selling prices and gross margins due to
potentially lower average license fees from indirect channels. See "Business--
Sales and Marketing."
COMPETITION
The market for the Company's products and services is intensely competitive
and is characterized by rapid change in technology and user needs and the
frequent introduction of new products. The anticipated growth in the mass
change and year 2000 industries is expected to attract additional competitors,
some of which may offer additional products and services. There are no
significant barriers to entry in the year 2000 industry. In addition, the
Company faces competition in the software maintenance outsourcing services
market. A number of the Company's competitors are more established, benefit
from greater name recognition and have substantially greater financial,
technical and marketing resources than those of the Company and certain of the
Company's value added integrators and distributors. As a result, there can be
no assurance that the Company's products and services, including the solutions
offered by the Company's value added integrators and distributors, will
compete effectively with those of their respective competitors. The Company's
value added integrators and distributors may also offer or develop products
and services that compete with the Company's products and services. There can
be no assurance that such value added integrators and distributors will not
give higher priority to the sales of these or other competitive products and
services. See "Business--Competition."
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL
The future success of the Company's growth strategy will depend to a
significant extent on its ability to attract, train, motivate and retain
highly skilled software professionals, particularly project managers, software
engineers and other senior technical personnel. The Company believes that
there is a shortage of, and significant competition for, software development
professionals with the skills and experience necessary to perform the services
offered by the Company. The Company's ability to maintain and renew existing
engagements and obtain new business depends, in large part, on its ability to
hire and retain technical personnel with the IT skills that keep pace with
continuing changes in software evolution, industry standards and technologies
and client preferences. The inability to hire additional qualified personnel
could impair the Company's ability to satisfy its growing client base,
requiring an increase in the level of responsibility for both existing and new
personnel. There can be no assurance that the Company will be successful in
retaining current or future employees.
FIXED-PRICE, FIXED-TIME FRAME CONTRACTS
As a core element of its business philosophy, the Company's strategy is to
offer its outsourcing and technology transfer services on fixed-price, fixed-
time frame contracts, rather than contracts in which payment to the Company is
determined solely on a time-and-materials basis. These contracts are
terminable by either party
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generally upon prior written notice. Although the Company uses its proprietary
tools and methodologies and its past project experience to reduce the risks
associated with estimating, planning and performing the fixed-price projects,
the Company's standard outsourcing and technology transfer agreements provide
for a fixed-fee based on projected reductions in a client's maintenance costs
and increases in a client's maintenance productivity. The Company's failure to
estimate accurately the resources, costs and time required for a project or
its failure to complete its contractual obligations within the time frame
committed could have a material adverse effect on the Company's business,
financial condition and results of operations.
POTENTIAL FOR CONTRACT LIABILITY
The Company's products and services relating to software maintenance,
especially solutions addressing the year 2000 problem, involve key aspects of
its clients' computer systems. A failure in a client's system could result in
a claim for substantial damages against the Company, regardless of the
Company's responsibility for such failure. The Company attempts to limit
contractually its liability for damages arising from negligent acts, errors,
mistakes or omissions in rendering its products and services. Despite this
precaution, there can be no assurance that the limitations of liability set
forth in its contracts would be enforceable or would otherwise protect the
Company from liability for damages. Additionally, the Company maintains
general liability insurance coverage, including coverage for errors and
omissions. However, there can be no assurance that such coverage will continue
to be available on acceptable terms, or will be available in sufficient
amounts to cover one or more large claims, or that the insurer will not
disclaim coverage as to any future claim. The successful assertion of one or
more large claims against the Company that exceed available insurance coverage
or changes in the Company's insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, litigation, regardless of its outcome,
could result in substantial cost to the Company and divert management's
attention from the Company's operations. Any contract liability claim or
litigation against the Company could, therefore, have a material adverse
effect on the Company's business, financial condition and results of
operations.
SOFTWARE ERRORS OR BUGS
The Company's software products and tools are highly complex and
sophisticated and could from time to time contain design defects or software
errors that could be difficult to detect and correct. Errors, bugs or viruses
may result in loss of or delay in market acceptance, a failure in a client's
system or loss or corruption of client data. Although the Company has not
experienced material adverse effects resulting from any software defects or
errors, there can be no assurance that, despite testing by the Company and its
clients, errors will not be found in new products, which errors could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
INTEGRATION OF ACQUISITIONS
In January 1996, the Company acquired Vista Technologies Incorporated, a
developer of computer-aided engineering software. Although the Company has no
existing commitments or agreements regarding any acquisitions, it may in the
future seek acquisitions of businesses, products and technologies that are
complementary to those of the Company. There can be no assurance that the
Company will ultimately effect any such acquisition, or that the Company will
be able to integrate successfully into its operations any business that it may
acquire. The process of integrating an acquired company's business into the
Company's operations may result in ongoing and extraordinary operating
difficulties and expenditures, may absorb significant management attention
that would otherwise be available for the ongoing development of the Company's
business and may result in charges to operating results. In addition, future
acquisitions by the Company could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses related to goodwill and other intangible assets, any of
which could have a material adverse effect on the Company's business,
financial condition and results of operations. Acquisitions also involve other
risks, including entering markets in which the Company has limited or no
direct prior experience and the potential loss of key employees. There can be
no assurance that a given acquisition, whether or not consummated, would not
have a material adverse effect on the Company's business, financial condition
and results of operations.
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LIMITED PROTECTION OF PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and
trade secret laws and license agreements to establish and protect its rights
in its software products and proprietary technology. In addition, the Company
currently requires its employees and consultants to enter into nondisclosure
and assignment of invention agreements to limit use of, access to and
distribution of its proprietary information. There can be no assurance that
the Company's means of protecting its proprietary rights in the United States
or abroad will be adequate. The laws of some foreign countries may not protect
the Company's proprietary rights as fully or in the same manner as do the laws
of the United States. Also, despite the steps taken by the Company to protect
its proprietary rights, it may be possible for unauthorized third parties to
copy aspects of the Company's products, reverse engineer, develop similar
technology independently or obtain and use information that the Company
regards as proprietary. Furthermore, there can be no assurance that others
will not develop technologies similar or superior to the Company's technology
or design around the proprietary rights owned by the Company.
The Company has entered into license agreements with a limited number of
clients that allow these clients access to and use of the Company's
AutoEnhancer/2000 software source code for certain purposes. Access to the
Company's source code may increase the likelihood of misappropriation or
misuse by third parties.
The Company has filed two patent applications with the United States Patent
and Trademark Office (the "PTO") pertaining to technologies, processes and
methodologies with respect to the Company's software. Neither of these patents
has been granted and there can be no assurance that a patent will be issued
pursuant to either of these applications or that, if granted, such patent
would survive a legal challenge to its validity or provide meaningful or
significant protection to the Company. Some competitors of the Company have
announced the filing with the PTO of patent applications relating to fixing
and assessing the year 2000 problem. The Company expects that the risk of
infringement claims against the Company might increase because its competitors
might successfully obtain patents for software products and processes or
because new and overlapping processes and methodologies used in such services
will become more pervasive, increasing the likelihood of infringement. There
can be no assurance that third parties will not assert infringement claims
against the Company in the future, that the assertion of such claims will not
result in litigation or that the Company would prevail in such litigation or
be able to obtain a license for the use of any infringed intellectual property
from a third party on commercially reasonable terms, if at all. Furthermore,
litigation, regardless of its outcome, could result in substantial cost to the
Company and divert management's attention from the Company's operations. Any
infringement claim or litigation against the Company could, therefore, have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company maintains trademarks and service marks to identify its various
service offerings, products and software. Although the Company has registered
one trademark and one service mark with the PTO and has several trademark and
service mark applications pending in the United States and foreign
jurisdictions, not all of the applications have been granted and, even if
granted, there can be no assurance that a particular trademark or service mark
will survive a legal challenge to its validity or provide meaningful or
significant protection to the Company. In some cases, entities other than the
Company are using certain trademarks and service marks, either in
jurisdictions in which the Company has not filed an application or in which
the Company is using a mark in a different manner than a third party. There
may be some risk of infringement claims against the Company in the event that
a service or product of the Company is too similar to that of another entity
that is using a similar mark.
DEPENDENCE ON THIRD-PARTY TECHNOLOGY
The Company's proprietary software is currently designed, and may in the
future be designed, to work on or in conjunction with certain third-party
hardware and/or software products. If any of these current or future third-
party vendors were to discontinue making their products available to the
Company or to licensees of the Company's software or to increase materially
the cost to the Company or its licensees to acquire, license or purchase the
third-party vendors' products, or if a material problem were to arise in
connection with the ability of the Company to design its software to properly
use or operate with third-party hardware and/or software products, the Company
would be required to redesign its software to function with or on alternative
third-party
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products or attempt to develop internally a replacement for the third-party
products. In such an event, interruptions in the availability or functioning
of the Company's software and delays in the introduction of new products and
services may occur until equivalent technology is obtained. There can be no
assurance that an alternative source of suitable technology would be available
or that the Company would be able to develop an alternative product in
sufficient time or at a reasonable cost. The failure of the Company to obtain
or develop alternative technologies or products on a timely basis and at a
reasonable cost could have a material adverse effect on the Company's
business, financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE
The market for the Company's products and services is characterized by
rapidly changing technology, evolving industry standards and new product
introductions and enhancements that may render existing products obsolete. As
a result, the Company's market position could erode rapidly due to unforeseen
changes in the features and functionality of competing products. The Company's
future success will depend in part upon its ability to enhance its existing
products and services and to develop and introduce new products and services
to meet changing client requirements. The process of developing products and
services such as those offered by the Company is extremely complex and is
expected to become increasingly complex and expensive in the future with the
introduction of new platforms and technologies. There can be no assurance that
the Company will successfully complete the development of new products in a
timely fashion or that the Company's current or future products will satisfy
the needs of its target market.
DEPENDENCE ON KEY MANAGEMENT PERSONNEL
The Company's business depends on a small number of key managerial
personnel. The loss of any of these key individuals could have a material
adverse effect on the Company's operations. In particular, the Company's
operations, particularly its research and development efforts, are dependent
on Dr. Dominic K. Chan, the Company's Chairman and Chief Executive Officer.
Dr. Chan is not subject to an employment agreement with the Company. See
"Management--Employment Agreements."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Although the Company's international revenue represented only 9.4% of total
revenue during 1996, the Company has a subsidiary in Spain and distributors in
Canada, Italy and Japan, and intends to expand its international sales
activities as part of its business strategy. The Company is in the process of
establishing a subsidiary in India, pending approval by the Indian government.
To date, substantially all of the Company's international revenue has been
attributable to revenue generated by the Company's majority-owned Spanish
subsidiary, Persist Servicios Software, S.A. In order to expand international
sales, the Company must establish additional foreign operations, hire
additional personnel and establish relationships with additional value added
integrators and distributors. This will require significant management
attention and financial resources and could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, there can be no assurance that the Company will be able to address
international market demand for the Company's products and services. The
Company's international sales are primarily denominated in U.S. dollars. An
increase in the value of the U.S. dollar relative to foreign currencies could
make the Company's products more expensive and, therefore, potentially less
competitive in those markets. In addition, the Company's international
business may be subject to a variety of risks, including difficulties in
collecting international accounts receivable or obtaining U.S. export
licenses, potentially longer payment cycles, increased costs associated with
maintaining international marketing efforts, the introduction of non-tariff
barriers and higher duty rates and difficulties in enforcement of contractual
obligations and intellectual property rights. There can be no assurance that
such factors will not have a material adverse effect on the Company's future
international sales and, consequently, on the Company's business, financial
condition or results of operations.
DEPENDENCE ON INDIA OFFSHORE SOFTWARE DEVELOPMENT CENTER
One element of the Company's business strategy is to establish an offshore
software development center in Bangalore, India that is intended to provide
the Company with a cost advantage as well as the ability to provide
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24-hour coverage for its outsourcing services clients. To provide its service
delivery model, the Company must maintain communications between its offices,
the offices of its clients in the U.S. and the Bangalore offshore software
development facility. Any loss of the Company's ability to transmit voice and
data through satellite communications to India could have a material adverse
effect on the Company's business, financial condition and results of
operations. In the past, India has experienced significant inflation, low
growth in gross domestic product and shortages of foreign exchange. India also
has experienced civil unrest and terrorism and, in the past, has been involved
in conflict with neighboring countries. No assurance can be given that the
Company will not be adversely affected by changes in inflation, interest
rates, taxation, social stability or other political, economic or diplomatic
developments in or affecting India in the future. In addition, the Indian
government has exercised and continues to exercise significant influence over
many aspects of the Indian economy, and Indian government actions concerning
the economy could have material adverse effect on private sector entities,
including the Company. During recent years, India's government has provided
significant tax incentives and relaxed certain regulatory restrictions in
order to encourage foreign investment in specified sectors of the economy,
including the software development industry. Certain of those benefits that
directly affect the Company include, among others, tax holidays, liberalized
import and export duties and preferential rules on foreign investment and
repatriation. Notwithstanding these benefits, however, India's central and
state governments remain significantly involved in the Indian economy. The
elimination of any of the benefits realized by the Company from its Indian
operations could have a material adverse effect on the Company's business
financial condition and results of operations.
IMMIGRATION ISSUES
The Company believes that its success in part has resulted from its ability
to attract and retain persons with technical and project management skills
from other countries. As of March 31, 1997, approximately four of the
Company's U.S.-based employees were working for the Company in the H-1B, non-
immigrant work permitted visa classification. There is a limit on the number
of new H-1B petitions that the Immigration and Naturalization Service may
approve in any government fiscal year, and in years in which this limit is
reached, the Company may be unable to obtain H-1B visas necessary to bring
critical foreign employees to the U.S. Compliance with existing U.S.
immigration laws, or changes in such laws making it more difficult to hire
foreign nationals or limiting the ability of the Company to retain H-1B
employees in the U.S., could require the Company to incur additional
unexpected labor costs and expenses. Any such restrictions or limitations on
the Company's hiring practices could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON GOVERNMENT CONTRACTS
One of the Company's strategies is to sell its products and services
directly or indirectly to state, federal and foreign government agencies. Any
failure to obtain a contract award, or a delay on the part of a government
agency in making the award or of ordering products and services under an
awarded contract, could have a material adverse effect on the financial
performance of the Company within a given period. Other risks involved in
government sales are the larger discounts (and thus lower margins) typically
involved in government sales, the dependence of the Company on the ability of
the prime contractor to obtain the award, the unpredictability of funding for
various government programs, the ability of the government agency to
unilaterally terminate the prime contract, and the dependence on the
creditworthiness of the prime contractor (some of which are relatively small
organizations without substantial funds). The Company anticipates that
government sales may constitute a significant but fluctuating portion of its
revenue in the future.
CONTROL BY DIRECTORS AND OFFICERS
Upon completion of this offering, the Company's officers and directors, and
their affiliates, will beneficially own approximately 47.4% of the Company's
outstanding Common Stock. As a practical matter, these stockholders, if acting
together, would have the ability to elect the Company's directors and may have
the ability to determine the outcome of corporate actions requiring
stockholder approval, irrespective of how other stockholders of the Company
may vote. This concentration of ownership may have the effect of delaying or
preventing a change in control of the Company. See "Management" and "Principal
and Selling Stockholders."
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BROAD DISCRETION AS TO USE OF PROCEEDS
The Company intends to use a portion of the net proceeds from this offering
to repay outstanding subordinated indebtedness. The remaining net proceeds
will be used, as determined by management in its sole discretion, for research
and development, working capital and general corporate purposes, as well as
for the possible acquisition of additional businesses and technologies that
are complementary to the current or future business of the Company. However,
the Company has not determined the specific allocation of the remaining net
proceeds among the various uses described above. Accordingly, investors in
this offering will rely upon the judgment of the Company's management with
respect to the use of proceeds, with only limited information concerning
management's specific intentions. See "Use of Proceeds."
NO PUBLIC MARKET
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price will be determined by negotiations among the
Company and the Representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Investors should be aware that market prices for securities of
software companies such as the Company are highly volatile.
DIVIDENDS
No cash dividends have been paid on the Common Stock to date and the Company
does not anticipate paying dividends in the foreseeable future. See "Dividend
Policy."
DILUTION
Purchasers of shares of Common Stock in this offering will suffer an
immediate and substantial dilution in the net tangible book value of the
Common Stock from the initial public offering price. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. On the date of this Prospectus, in addition to the 2,900,000 shares
offered hereby, approximately 174,252 shares of Common Stock, which are not
subject to 180-day lock-up agreements (the "Lock-Up Agreements") with the
Representatives of the Underwriters, will be eligible for immediate sale in
the public market pursuant to Rule 144(k) under the Securities Act of 1933, as
amended (the "Securities Act"). Approximately 138,606 additional shares of
Common Stock, which are not subject to the Lock-Up Agreements, will be
eligible for sale in the public market in accordance with Rule 144 or Rule 701
under the Securities Act beginning 90 days after the date of this Prospectus.
Upon expiration of the Lock-Up Agreements 180 days after the date of this
Prospectus (and assuming no exercise of outstanding options), approximately
9,566,165 additional shares of Common Stock will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act.
Promptly following the consummation of this offering, the Company intends to
register an aggregate of 400,000 shares of Common Stock issuable under its
1997 Director Stock Option Plan and 1997 Employee Stock Purchase Plan. In
addition, the Company intends to register approximately 5,006,238 shares of
Common Stock issuable under its 1992 Long-Term Incentive Plan and 1997 Stock
Incentive Plan following the 90th day after the date of this Prospectus.
Holders of approximately 10,677,071 shares of Common Stock (including
1,110,906 shares of Common Stock that may be acquired pursuant to the exercise
of vested options held by them and exercisable within 60 days of June 30,
1997) have agreed, pursuant to the Lock-Up Agreements, not to sell, offer,
contract or grant any option to sell, pledge, transfer, establish an open put
equivalent position or otherwise dispose of such shares for 180 days after the
date of the final Prospectus. The Company is unable to predict the effect that
sales made under Rule 144, or otherwise, may have on the then prevailing
market price of the Common Stock. The holders of approximately 5,719,112
shares of Common Stock are entitled to certain piggyback and demand
registration rights with respect to such
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shares. By exercising their registration rights, such holders could cause a
large number of shares to be registered and sold in the public market. Sales
pursuant to Rule 144 or other exemptions from registration, or pursuant to
registration rights, may have an adverse effect on the market price for the
Common Stock and could impair the Company's ability to raise capital through
an offering of its equity securities. See "Description of Capital Stock,"
"Shares Eligible for Future Sale" and "Underwriting."
POTENTIAL ADVERSE EFFECTS OF ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF
PREFERRED STOCK
The Company's Amended and Restated Articles of Organization and Amended and
Restated By-laws contain provisions that may make it more difficult for a
third party to acquire, or discourage acquisition bids for, the Company. For
instance, the Company's Amended and Restated By-laws provide that special
meetings of stockholders may be called only by the President, the Board of
Directors or the holders of at least 80% of the voting securities of the
Company. In addition, the Massachusetts General Laws provide that stockholders
may take action without a meeting only by the unanimous written consent of all
stockholders. The Company's Board of Directors is also divided into three
classes, as nearly equal in size as possible, with staggered three-year terms.
Upon completion of this offering, the Company will be subject to an anti-
takeover provision of the Massachusetts General Laws which prohibits, subject
to certain exceptions, a holder of 5% or more of the outstanding voting stock
of the Company from engaging in certain activities with the Company, including
a merger, stock or asset sale. The foregoing provisions could limit the price
that certain investors might be willing to pay in the future for shares of the
Company's Common Stock. In addition, shares of the Company's Preferred Stock
may be issued in the future without further stockholder approval and upon such
terms and conditions, and having such rights, privileges and preferences, as
the Board of Directors may determine. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of any
holders of Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock. See "Description of Capital Stock."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered by the Company hereby are estimated to be $27,769,000, assuming an
initial public offering price of $11.00 per share and after deducting the
estimated underwriting discount and offering expenses. The Company will not
receive any of the net proceeds from the sale of shares by the Selling
Stockholder. "See Principal and Selling Stockholders."
The Company intends to use approximately $1,080,000 of the net proceeds from
this offering to repay in full the outstanding indebtedness, and the related
prepayment premiums, outstanding under a certain Secured Subordinated Note due
June 30, 2002 (the "MCRC Note") issued to Massachusetts Capital Resources
Company and bearing interest at a rate of 10% per annum. The Company used the
proceeds from the MCRC Note for working capital purposes.
The Company plans to use the balance of the net proceeds from this offering
for research and development, working capital and other general corporate
purposes. The Company may also use a portion of the net proceeds of this
offering to fund acquisitions of complementary businesses, products or
technologies, although there are currently no commitments or agreements with
respect to any such acquisitions.
Pending use of the net proceeds, the Company intends to invest the net
proceeds from this offering in short-term, investment-grade, interest-bearing
instruments. Other than the portion of the proceeds to be used to repay
outstanding indebtedness, the Company does not believe it can accurately
estimate the amounts to be used for each purpose at this time. See "Risk
Factors--Broad Discretion as to Use of Proceeds."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its shares of
Common Stock. The Company currently intends to retain all of its earnings, if
any, to finance future growth and therefore does not anticipate paying cash
dividends in the foreseeable future. Under the terms of the Company's credit
agreements there are certain restrictions on the Company's ability to declare
and pay dividends. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
Notes 6 and 7 of Notes to the Company's Consolidated Financial Statements.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997 on an actual, pro forma and pro forma as adjusted basis. The
information set forth in the table below should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
--------------- ---------------- ---------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations..... $ 170 $ 170 $ 170
Long-term debt, net of current
portion...................... 1,306 1,306 363
--------------- --------------- ---------------
Total long-term debt...... 1,476 1,476 533
--------------- --------------- ---------------
Redeemable convertible
preferred stock, no par
value;
Series A--1,903,525 shares
authorized, issued and
outstanding actual; none
issued and outstanding pro
forma and pro forma as
adjusted.................... 6,094 -- --
Series B--1,818,182 shares
authorized, issued and
outstanding actual; none
issued and outstanding pro
forma and pro forma as
adjusted.................... 6,158 -- --
Redeemable common stock
right........................ 294 -- --
--------------- --------------- ---------------
Total redeemable stock.... 12,546 -- --
--------------- --------------- ---------------
Stockholders' equity
(deficit):
Common stock, $.01 par value;
50,000,000 shares authorized
pro forma and pro forma as
adjusted; 9,979,023 shares
issued and outstanding pro
forma; 12,779,023 shares
issued and outstanding pro
forma as adjusted (3)....... -- 100 128
Class A common stock, no par
value; 13,295,000 shares
authorized; 6,156,114 shares
issued and outstanding
actual; no shares issued and
outstanding pro forma and
pro forma as adjusted....... 2,209 -- --
Class B common stock, no par
value; 275,000 shares
authorized; 101,196 shares
issued and outstanding
actual; no shares issued and
outstanding pro forma and
pro forma as adjusted....... 164 -- --
Additional paid-in capital... -- 14,819 42,560
Accumulated deficit.......... (5,446) (5,446) (5,583)
Note receivable from
stockholder................. (58) (58) (58)
Cumulative translation
adjustment.................. (29) (29) (29)
--------------- --------------- ---------------
Total stockholders' equity
(deficit)................ (3,160) 9,386 37,018
--------------- --------------- ---------------
Total capitalization.... $ 10,862 $ 10,862 $ 37,551
=============== =============== ===============
</TABLE>
- --------
(1) Gives effect to (i) the filing of an amendment to the Company's Articles
of Organization prior to the closing of this offering redesignating the
Company's Class A Common Stock as Common Stock, $.01 par value, and
increasing the number of authorized shares of Common Stock to 50,000,000,
(ii) the lapse of the Redeemable Common Stock Right and the conversion of
all outstanding shares of the Company's Class B Common Stock and
Convertible Preferred Stock into an aggregate of 3,822,903 shares of
Common Stock upon the closing of this offering, and (iii) the filing of an
amendment to the Company's Articles of Organization upon the closing of
this offering to eliminate the Company's Class B Common Stock and existing
series of Convertible Preferred Stock and to create a class of authorized
but undesignated Preferred Stock.
(2) Reflects the issuance and sale by the Company of 2,800,000 shares of
Common Stock offered hereby and the application of a portion of the net
proceeds therefrom to repay certain indebtedness, at an assumed initial
public offering price of $11.00 per share after deducting the estimated
underwriting discount and offering expenses.
(3) Excludes an aggregate of 3,056,238 shares of Common Stock reserved under
the Company's 1992 Long-Term Incentive Plan, all of which shares were
subject to outstanding options as of March 31, 1997 at a weighted average
exercise price of $2.26. Also excludes an aggregate of 2,350,000 shares of
Common Stock reserved under the Company's 1997 Stock Incentive Plan, 1997
Director Stock Option Plan and 1997 Employee Stock Purchase Plan, which
plans were adopted by the Board of Directors on May 5, 1997 and will be
submitted to the stockholders of the Company for approval prior to the
closing of this offering. Also excludes 312,500 shares of Common Stock
issuable upon the exercise of outstanding warrants as of March 31, 1997 at
an exercise price of $1.60 per share. See "Management--Executive
Compensation" and Notes 10 through 14 of Notes to the Company's
Consolidated Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was $8,960,000, or $0.90 per share of Common Stock. Pro forma net tangible
book value per share is determined by dividing the Company's tangible net
worth (tangible assets less liabilities) by the number of shares of Common
Stock outstanding, after giving effect to the mandatory conversion of the
Company's Class B Common Stock and Convertible Preferred Stock and the lapse
of the Redeemable Common Stock Right upon the completion of this offering.
After giving effect to the sale of the shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $11.00 per share
and after deducting the estimated underwriting discount and offering expenses,
the pro forma net tangible book value of the Company as of March 31, 1997
would have been $36,592,000, or $2.86 per share. This represents an immediate
increase in such pro forma net tangible book value of $1.96 per share to
existing stockholders and an immediate dilution of $8.14 per share to new
investors purchasing shares in this offering. If the initial public offering
price is higher or lower, the dilution to the new investors will be greater or
less, respectively. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $11.00
Pro forma net tangible book value per share as of March 31,
1997....................................................... $0.90
Increase per share attributable to this offering............ 1.96
-----
Pro forma net tangible book value per share after this
offering..................................................... 2.86
------
Dilution per share to new investors........................... $ 8.14
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the total number of shares of Common Stock purchased from the Company, the
total consideration paid and the average consideration paid per share by the
existing stockholders and by the new investors assuming the sale by the
Company of 2,800,000 shares at an assumed initial public offering price of
$11.00 per share (before deducting the estimated underwriting discount and
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------
AVERAGE
PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).. 9,979,023 78.1% $14,388,000 31.8% $1.35
New investors............. 2,800,000 21.9 30,800,000 68.2 11.00
---------- ----- ----------- -----
Total................... 12,779,023 100.0% $45,188,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholder in this offering will reduce the number
of shares held by existing stockholders to 9,879,023, or 77.3% of the
total number of shares of Common Stock outstanding after this offering (or
9,444,023 shares and 73.9% if the Underwriters' over-allotment option is
exercised in full), and will increase the number of shares held by new
investors to 2,900,000, or 22.7% of the total number of shares of Common
Stock outstanding after this offering (or 3,335,000 shares and 26.1% if
the Underwriters' over-allotment option is exercised in full).
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the three years
ended December 31, 1996, and as of December 31, 1995 and 1996, are derived
from the Company's Consolidated Financial Statements, which appear elsewhere
in this Prospectus and which have been audited by Price Waterhouse LLP,
independent accountants. The selected financial data set forth below as of
December 31, 1994 are derived from the Company's audited financial statements,
which are not included in this Prospectus. The selected financial data as of
and for the years ended December 31, 1992 and 1993 are derived from the
Company's unaudited financial statements, which are not included in this
Prospectus. The selected consolidated financial data for the three months
ended March 31, 1996 and 1997, and as of March 31, 1997, are derived from the
Company's unaudited consolidated financial statements which appear elsewhere
in this Prospectus. In the opinion of management, the unaudited financial
statements have been prepared on a basis consistent with the Consolidated
Financial Statements which appear elsewhere in this Prospectus and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and results of operations for these
unaudited periods. The operating results for the three months ended March 31,
1997 are not necessarily indicative of the results to be expected for the full
year ending December 31, 1997. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial
Statements, including the Notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------- -------- -------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Outsourcing services... $ 746 $1,798 $7,130 $16,400 $ 10,190 $ 2,244 $2,519
License................ -- -- -- -- 6,526 -- 4,144
Other services......... 117 433 742 2,105 2,519 404 1,196
------ ------ ------ ------- -------- -------- ------
Total revenue (1)..... 863 2,231 7,872 18,505 19,235 2,648 7,859
------ ------ ------ ------- -------- -------- ------
Cost of revenue:
Outsourcing services... 517 841 4,700 9,602 8,488 2,234 2,045
License................ -- -- -- -- 162 -- 127
Other services......... 103 306 319 2,421 2,931 506 1,289
------ ------ ------ ------- -------- -------- ------
Total cost of
revenue.............. 620 1,147 5,019 12,023 11,581 2,740 3,461
------ ------ ------ ------- -------- -------- ------
Gross profit (loss).... 243 1,084 2,853 6,482 7,654 (92) 4,398
------ ------ ------ ------- -------- -------- ------
Operating expenses:
Sales and marketing.... 76 265 366 2,129 3,116 654 1,383
Research and
development........... 7 196 560 1,703 6,033 1,360 1,634
General and
administrative........ 274 428 1,283 2,357 3,249 748 925
------ ------ ------ ------- -------- -------- ------
Total operating
expenses............. 357 889 2,209 6,189 12,398 2,762 3,942
------ ------ ------ ------- -------- -------- ------
Income (loss) from
operations............ (114) 195 644 293 (4,744) (2,854) 456
Interest income
(expense), net........ 2 -- (63) (203) (296) (38) 27
------ ------ ------ ------- -------- -------- ------
Income (loss) before
income taxes, minority
interest and equity in
loss of less than
majority-owned
company............... (112) 195 581 90 (5,040) (2,892) 483
Provision (benefit) for
estimated income
taxes................. -- 7 179 (8) (143) (142) 48
------ ------ ------ ------- -------- -------- ------
Income (loss) before
minority interest and
equity in loss of less
than majority-owned
company............... (112) 188 402 98 (4,897) (2,750) 435
Minority interest in
consolidated
subsidiary............ -- -- -- (43) (24) 38 (29)
Equity in loss of less
than majority-owned
company............... -- -- (97) -- -- -- --
------ ------ ------ ------- -------- -------- ------
Net income (loss)...... $ (112) $ 188 $ 305 $ 55 $ (4,921) $ (2,712) $ 406
====== ====== ====== ======= ======== ======== ======
Pro forma net income
(loss) per share (2).. $ (0.46) $ 0.03
======== ======
Weighted average shares
used to compute pro
forma net income
(loss) per share(2)... 10,653 12,670
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
MARCH 31,
1992 1993 1994 1995 1996 1997
---- ------ ------ ------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $-- $ 2 $ 339 $ 264 $ 7,388 $ 5,022
Working capital (deficit)....... (19) 338 1,267 2,218 8,218 8,406
Total assets.................... 540 1,075 2,924 7,179 17,725 15,712
Long-term debt, net of current
portion........................ 224 491 777 1,792 1,538 1,476
Redeemable stock................ -- -- -- -- 12,287 12,546
Stockholders' equity (deficit).. 202 498 867 1,802 (3,302) (3,160)
</TABLE>
- -------
(1) Revenue (in thousands) from related parties in the years ended December
31, 1992, 1993, 1994, 1995 and 1996 and the three months ended March 31,
1996 and 1997 was $752, $824, $4,317, $10,124, $6,443, $1,179 and $975,
respectively. See the Company's Consolidated Financial Statements.
(2) See Note 2 of Notes to the Company's Consolidated Financial Statements for
an explanation of the determination of pro forma net income (loss) per
share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains certain forward-looking statements. Actual
results could differ materially. See "Risk Factors."
OVERVIEW
Peritus was founded in 1991 to address the growing market for managing and
maintaining the installed base of software in organizations. The Company
focused its efforts on the delivery of software maintenance outsourcing
services until 1995, when it began to devote significant resources to the
development of software tools addressing the problems associated with mass
changes to application systems and their associated databases, particularly
the year 2000 problem. In 1996, the Company began licensing its
AutoEnhancer/2000 software, which was designed to address the year 2000
problem, to value added integrators and directly to end users. In 1996, the
Company expanded its research and development efforts through the acquisition
of Vista Technologies Incorporated, a developer of computer-aided engineering
software ("Vista").
The Company derives its revenue from software maintenance outsourcing
services, software and methodology licensing and other services sold directly
to end users or indirectly via value added integrators and distributors, and
its clients include primarily Fortune 1000 companies and similarly sized
business and government organizations worldwide. The Company's products and
services are marketed through its direct sales force, both domestically and in
Spain, through value added integrators operating worldwide and through
international distributors in Canada, Italy and Japan.
Revenue Recognition Policies
The Company's outsourcing services are generally offered under multi-year,
fixed-price, fixed-time frame contracts. In connection with the delivery of
its outsourcing services, the Company assesses a client's IT costs and agrees
to provide services at a price generally below the internal costs of the
client. Revenue under these contracts is recognized using the percentage-of-
completion method and is based on the ratio that labor-hours incurred to date
bear to estimated total labor-hours at completion, provided that collection of
the related receivable is probable. Because the labor-hours associated with
the Company's outsourcing services are typically higher in the early phases of
the contract, revenue is also typically higher in such phases and declines
over the term of the contract. Under the percentage-of-completion method, the
Company updates on a quarterly basis its completion estimates of each contract
to reflect changes in projected completion costs or dates. The cumulative
impact of any revision in estimates is reflected in each quarterly financial
reporting period in which the change in the estimate becomes known. When the
revised estimates indicate a loss on the contract, such loss is provided for
currently in its entirety. As the Company bears the risk of cost overruns and
inflation associated with multi-year, fixed-price, fixed-time frame contracts,
the Company's operating results may be adversely affected by inaccurate
estimates of contract completion costs and dates. These contracts may be
revised by the Company and the client when a significant change in the scope
or cost of a project arises that neither the Company nor the client had
anticipated. These contracts are terminable at will by either party upon
written notice in accordance with the terms of the contract, at which time
payment for services rendered to date is due.
The Company licenses its software products and methodologies directly and
indirectly (via distributors) to end users and to value added integrators for
their use in serving their clients. License fees charged to end users are
fixed, with the amount of the fee based on the estimated total lines of code
to be processed. Revenue from end-user licenses is recognized when software
and methodologies have been delivered to the end user, all significant
contractual obligations have been met and collection of the related receivable
is probable. License fees charged to value added integrators and distributors
are generally royalties based on lines of code processed or to be processed.
Revenue derived from these usage-based licenses is recognized when licensed
software has been delivered, the fee is fixed or determinable, all significant
contractual obligations have been met and collection of the related receivable
is probable.
21
<PAGE>
Other services provided by the Company include technology transfer
engagements (including insourcing engagements expected to begin in 1997),
product training, value added integrator and distributor sales training,
consulting services and software product maintenance. Other services also
include direct delivery contracts, in which the Company provides full year
2000 renovations and pilot year 2000 renovations for clients using the
Company's AutoEnhancer/2000 software. Pilot projects are generally priced to
the client at the Company's estimated cost of providing such services. Revenue
from direct delivery contracts is recognized over the duration of such
contracts as work is performed and defined milestones are attained. Any
estimated losses on direct delivery contracts are recorded in their entirety
in the period in which they become known. Revenue from technology transfer
engagements, product and sales training and consulting services is billed on a
time-and-materials basis and is recognized as the services are provided. With
respect to the Company's proposed insourcing services, the Company intends to
charge a royalty for client productivity gains resulting from such services,
the revenue from which will be recognized as such gains are realized by the
client. Revenue from software product maintenance contracts on the Company's
licensed products, including client support bundled with the initial license
fee, is deferred and recognized ratably over the contractual periods during
which the services are provided.
Client Concentration
During the past several years, the Company's revenue has been dependent on a
few major clients. During the three months ended March 31, 1997, revenue from
three clients accounted for 22.7%, 13.4% and 10.6% of the Company's total
revenue, respectively. During 1996, revenue from three clients accounted for
29.0%, 14.6% and 12.1% of the Company's total revenue. During 1995, revenue
from three clients accounted for 50.3%, 12.9% and 11.0% of the Company's total
revenue, and in 1994 revenue from two clients accounted for 51.7% and 29.3% of
the Company's total revenue. The largest client in each of 1996, 1995 and 1994
was a related party of the Company. See Note 8 of Notes to the Company's
Consolidated Financial Statements. The Company's ten largest clients in the
three months ended March 31, 1997 and each of 1996, 1995 and 1994 accounted
for approximately 79.2%, 77.9%, 90.5% and 92.1% of the Company's total
revenue, respectively. The Company anticipates that this concentration of
clients as a percentage of the Company's total revenue will diminish in the
future but that the Company will continue to depend to a significant extent
upon revenue from a small number of clients. See "Risk Factors--Concentration
of Clients and Credit Risk; Related Party Transactions."
Capitalized Software Costs
In accordance with Statement of Financial Accounting Standards ("SFAS") 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, the Company is required to capitalize software development costs
incurred after the establishment of the technological feasibility of a
product. Costs incurred prior to the establishment of technological
feasibility are charged to research and development expense. As releases of
the Company's products over the three years ended December 31, 1996 have
generally occurred soon after technological feasibility has been established,
the costs subject to capitalization have not been material and thus have not
been capitalized. In January 1996, the Company acquired Vista for total
consideration of $815,000 in a transaction accounted for under the purchase
method of accounting. Approximately $150,000 of the acquisition price was
allocated to software technology and is being amortized over three years to
cost of revenue. See Note 2 of Notes to the Company's Consolidated Financial
Statements.
Spanish Subsidiary
In September 1994, the Company, along with two other investors, established
Persist Servicios Software, S.A. ("Persist") to provide software maintenance
services in Spain and Portugal. The Company's initial equity position in
Persist was 40.0%. In 1995, Persist signed two outsourcing agreements and
increased staff to deliver these contracts. Also in 1995, the Company acquired
a majority interest in Persist and, accordingly, began to consolidate the
financial statements of Persist with those of the Company. Persist continues
to provide outsourcing services to clients and has also begun to license the
AutoEnhancer/2000 software in Spain and Portugal. See Note 3 of Notes to the
Company's Consolidated Financial Statements.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenue of certain line items included in the Company's consolidated
statement of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Outsourcing services....... 90.6% 88.6% 53.0% 84.7% 32.1%
License.................... -- -- 33.9 -- 52.7
Other services............. 9.4 11.4 13.1 15.3 15.2
------- ------- -------- ---------- --------
Total revenue (1)........ 100.0 100.0 100.0 100.0 100.0
------- ------- -------- ---------- --------
Cost of revenue:
Outsourcing services....... 59.7 51.9 44.1 84.4 26.0
License.................... -- -- 0.8 -- 1.6
Other services............. 4.1 13.1 15.3 19.1 16.4
------- ------- -------- ---------- --------
Total cost of revenue.... 63.8 65.0 60.2 103.5 44.0
------- ------- -------- ---------- --------
Gross profit (loss).......... 36.2 35.0 39.8 (3.5) 56.0
------- ------- -------- ---------- --------
Operating expenses:
Sales and marketing........ 4.6 11.5 16.2 24.7 17.6
Research and development... 7.1 9.2 31.4 51.4 20.8
General and administra-
tive...................... 16.3 12.7 16.9 28.2 11.8
------- ------- -------- ---------- --------
Total operating ex-
penses.................. 28.0 33.4 64.5 104.3 50.2
------- ------- -------- ---------- --------
Income (loss) from
operations................ 8.2 1.6 (24.7) (107.8) 5.8
Interest income (expense),
net......................... (0.8) (1.1) (1.5) (1.4) 0.3
------- ------- -------- ---------- --------
Income (loss) before income
taxes, minority interest
and equity in loss of less
than majority-owned
company................... 7.4 0.5 (26.2) (109.2) 6.1
Provision (benefit) for
estimated income taxes...... 2.3 -- (0.7) (5.4) 0.6
------- ------- -------- ---------- --------
Income (loss) before
minority interest and
equity in loss of less
than majority-owned
company................... 5.1 0.5 (25.5) (103.8) 5.5
Minority interest in
consolidated subsidiary..... -- (0.2) (0.1) 1.4 (0.4)
Equity in loss of less than
majority-owned company...... (1.2) -- -- -- --
------- ------- -------- ---------- --------
Net income (loss).......... 3.9% 0.3% (25.6)% (102.4)% 5.1%
======= ======= ======== ========== ========
</TABLE>
- --------
(1) Revenue from related parties in the years ended December 31, 1994, 1995
and 1996 and the three months ended March 31, 1996 and 1997 represented
54.8%, 54.7%, 33.5%, 44.5% and 12.4% of total revenue, respectively.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
REVENUE
Total revenue increased 196.8% to $7,859,000 in the three months ended March
31, 1997 from $2,648,000 in the three months ended March 31, 1996. This
increase was primarily due to the initial licensing of the Company's
AutoEnhancer/2000 software, as well as from increases in other services
revenue and, to a lesser
23
<PAGE>
extent, outsourcing services revenue. International revenue increased 176.0%
to $541,000 in the three months ended March 31, 1997 from $196,000 in the
three months ended March 31, 1996. As a percentage of total revenue,
international revenue decreased to 6.9% in the three months ended March 31,
1997 from 7.4% in the three months ended March 31, 1996. Substantially all of
the Company's international revenue for the three months ended March 31, 1997
and 1996 was attributable to revenue generated by Persist.
Outsourcing Services. Outsourcing services revenue increased 12.3% to
$2,519,000 in the three months ended March 31, 1997 from $2,244,000 in the
three months ended March 31, 1996. As a percentage of total revenue,
outsourcing services revenue decreased to 32.0% in the three months ended
March 31, 1997 from 84.7% in the three months ended March 31, 1996. The
increase in outsourcing services revenue in absolute dollars was primarily
attributable to the addition of two new outsourcing contracts in late 1996 and
was partially offset by the recognition of lesser amounts of revenue under the
percentage-of-completion method on existing contracts that were in their later
phases. The decrease in outsourcing services revenue as a percentage of total
revenue reflects the contribution of license revenue to total revenue during
the three months ended March 31, 1997. Outsourcing services remain a major
component of the solutions offered by the Company, and the Company anticipates
that such services will continue to account for a significant portion of total
revenue for the foreseeable future.
License. License revenue was $4,144,000 in the three months ended March 31,
1997, or 52.7% of total revenue. The Company recognized no license revenue in
the three months ended March 31, 1996. The Company's license revenue in the
three months ended March 31, 1997 was primarily attributable to the delivery
of licensed software to two end users and to license fees from value added
integrators.
Other Services. Other services revenue increased 196.0% to $1,196,000 in the
three months ended March 31, 1997 from $404,000 in the three months ended
March 31, 1996. As a percentage of total revenue, other services revenue was
15.2% in the three months ended March 31, 1997 compared to 15.3% in the three
months ended March 31, 1996. The increase in other services revenue in
absolute dollars was primarily attributable to an increase in consulting,
training and client support services relating to the Company's year 2000
products and services. This increase was partially offset by a decrease in
direct delivery services for one significant pilot year 2000 renovation.
COST OF REVENUE
Cost of Outsourcing Services Revenue. Cost of outsourcing services revenue
consists primarily of salaries, benefits and overhead costs associated with
delivering outsourcing services to clients. The cost of outsourcing services
revenue decreased 8.5% to $2,045,000 in the three months ended March 31, 1997
from $2,234,000 in the three months ended March 31, 1996. Cost of outsourcing
services revenue decreased as a percentage of outsourcing services revenue to
81.2% in the three months ended March 31, 1997 from 99.6% in the three months
ended March 31, 1996. The decrease in the cost of outsourcing services revenue
as a percentage of outsourcing services revenue was due primarily to the re-
deployment in late 1996 of underutilized resources to research and development
and support activities, partially offset by the addition of resources
necessary to provide services under the two new outsourcing contracts.
Cost of License Revenue. Cost of license revenue consists primarily of
salaries, benefits and related overhead costs associated with materials
packaging and freight. Cost of license revenue was $127,000 in the three
months ended March 31, 1997, or 3.1% of license revenue. There was no cost of
license revenue in the three months ended March 31, 1996. These costs were
attributable to the licensing of the Company's AutoEnhancer/2000 software.
Cost of Other Services Revenue. Cost of other services revenue consists
primarily of salaries, benefits and related overhead costs associated with
delivering other services to clients. Cost of other services revenue increased
154.7% to $1,289,000 in the three months ended March 31, 1997 from $506,000 in
the three months ended March 31, 1996. Cost of other services revenue as a
percentage of other services revenue decreased to
24
<PAGE>
107.8% in the three months ended March 31, 1997 from 125.2% in the three
months ended March 31, 1996. Costs exceeded revenue in the three months ended
March 31, 1996 primarily as a result of expected cost overruns on one
significant pilot engagement, which subsequently became a significant product
license. Costs exceeded revenue in the three months ended March 31, 1997 due
to increased staffing in the Company's client support, training and consulting
organizations in anticipation of future revenue primarily related to the
introduction of the Company's year 2000 products and services.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related overhead costs for Company personnel; sales
referral fees to third parties; advertising programs; and other promotional
activities. Sales and marketing expenses increased 111.5% to $1,383,000 in the
three months ended March 31, 1997 from $654,000 in the three months ended
March 31, 1996. As a percentage of total revenue, sales and marketing expenses
decreased to 17.6% in the three months ended March 31, 1997 from 24.7% in the
three months ended March 31, 1996. The increase in expenses in absolute
dollars was primarily attributable to increased staffing, commissions,
including an increase in sales referral fees to third parties, and promotional
activities in conjunction with the launch of the Company's AutoEnhancer/2000
software. The Company intends to increase the amount of expenditures for sales
and marketing in 1997, both domestically and internationally. There can be no
assurance that these expenditures will result in increased revenue.
Research and Development. Research and development expenses consist
primarily of salaries, benefits and related overhead costs for engineering and
technical personnel and outside engineering consulting services associated
with developing new products and enhancing existing products. Research and
development expenses increased 20.1% to $1,634,000 in the three months ended
March 31, 1997 from $1,360,000 in the three months ended March 31, 1996. As a
percentage of total revenue, research and development expenses decreased to
20.8% in the three months ended March 31, 1997 from 51.4% in the three months
ended March 31, 1996. The increase in research and development expenses in
absolute dollars was primarily attributable to increased staffing for the
product development efforts for the Company's year 2000 products and services
and mass change technologies, including an increase in staffing effected
through new hires and internal transfers. The Company intends to employ
additional research and development staff and therefore anticipates that
research and development expenses will increase in absolute dollars in 1997.
General and Administrative. General and administrative expenses consist
primarily of salaries and related costs for the finance and accounting, human
resources, legal services, information systems and other administrative
departments of the Company, as well as legal and accounting expenses and the
amortization of goodwill associated with the Vista acquisition. General and
administrative expenses increased 23.7% to $925,000 in the three months ended
March 31, 1997 from $748,000 in the three months ended March 31, 1996. As a
percentage of total revenue, general and administrative expenses decreased to
11.8% in the three months ended March 31, 1997 from 28.3% in the three months
ended March 31, 1996. The increase in general and administrative expenses in
absolute dollars was primarily due to additions to the Company's
administrative staff to support growth, higher professional fees and increases
in other general corporate expenses. The Company anticipates that general and
administrative expenses will increase in absolute dollars in 1997 in part due
to increased costs associated with becoming a publicly held company.
Interest Income (Expense), Net. Interest income (expense), net is primarily
composed of interest income from cash balances and interest expense on debt.
Interest income, net of $27,000 in the three months ended March 31, 1997
compares to interest expense, net of $38,000 in the three months ended March
31, 1996. This change was primarily attributable to decreased interest expense
on lesser borrowings by the Company as well as increased interest income from
increased cash balances.
Provision (Benefit) for Income Taxes. The Company recorded an income tax
provision of $48,000 in the three months ended March 31, 1997, versus a
benefit of $142,000 in the three months ended March 31, 1996.
25
<PAGE>
The provision was the result of an increase in taxable income, which was
partially offset by the Company's expected utilization in 1997 of previously
generated net operating loss carryforwards. The usage of these net operating
loss carryforwards may be limited due to a change in Company ownership that
resulted from sales of the Company's Convertible Preferred Stock.
Minority Interest in Consolidated Subsidiary. The minority interest in
consolidated subsidiary represents the equity interest in the operating
results of Persist, the Company's majority-owned Spanish subsidiary, held by
stockholders of Persist other than the Company. The minority interest in
consolidated subsidiary increased to income of $29,000 in the three months
ended March 31, 1997 from a loss of $38,000 in the three months ended March
31, 1996. This change was the result of the increased profitability of
Persist. At March 31, 1997, the Company held a 63.7% equity interest in
Persist compared to a 69.5% equity interest at March 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE
Total revenue increased 3.9% to $19,235,000 in 1996 from $18,505,000 in
1995. This increase was primarily due to the initial licensing of the
Company's AutoEnhancer/2000 software in 1996, as well as from an increase in
other services revenue, which was offset by a significant decrease in
outsourcing services revenue. International revenue increased 66.8% to
$1,800,000 in 1996 from $1,079,000 in 1995. As a percentage of total revenue,
international revenue increased to 9.4% in 1996 from 5.8% in 1995.
Substantially all of the Company's international revenue during 1995 and 1996
was attributable to revenue generated by Persist.
Outsourcing Services. Outsourcing services revenue decreased 37.9% to
$10,190,000 in 1996 from $16,400,000 in 1995. As a percentage of total
revenue, outsourcing services revenue decreased to 53.0% in 1996 from 88.6% in
1995. The decrease in outsourcing services revenue was primarily attributable
to the recognition of lesser amounts of revenue under the percentage-of-
completion method on two significant contracts that were in their later
phases. In addition, as the Company began to focus more of its efforts in 1996
on the licensing of its AutoEnhancer/2000 software, the Company did not add a
sufficient number of new outsourcing contracts to offset this decline in
outsourcing services revenue.
License. License revenue was $6,526,000 in 1996, or 33.9% of total revenue.
License revenue was generated in 1996 from the introduction of the Company's
AutoEnhancer/2000 software and was primarily attributable to three licenses,
one of which was with a related party.
Other Services. Other services revenue increased 19.7% to $2,519,000 in 1996
from $2,105,000 in 1995. As a percentage of total revenue, other services
revenue increased to 13.1% in 1996 from 11.4% in 1995. The increase in other
services revenue was primarily attributable to an increase in technology
transfer revenue as well as the introduction of consulting and product
training services for the Company's AutoEnhancer/2000 software. These
increases were partially offset by a decrease in direct delivery services for
one significant pilot year 2000 renovation.
COST OF REVENUE
Cost of Outsourcing Services Revenue. Cost of outsourcing services revenue
decreased 11.6% to $8,488,000 in 1996 from $9,602,000 in 1995. Cost of
outsourcing services revenue increased as a percentage of outsourcing services
revenue to 83.3% in 1996 from 58.5% in 1995. Although cost of outsourcing
services revenue declined in absolute dollars from 1995 to 1996, the decline
did not keep pace with the decreases in outsourcing services revenue. The
increase in cost of outsourcing services revenue as a percentage of
outsourcing services revenue was due primarily to the underutilization of
personnel resulting from the lack of significant new outsourcing contracts in
1996, and, to a lesser extent, to cost overruns associated with a significant
contract. In the third and fourth quarters of 1996, the Company re-deployed
resources dedicated to outsourcing services from the delivery of those
services to client support, consulting support and research and development.
26
<PAGE>
Cost of License Revenue. Cost of license revenue was $162,000 in 1996, or
2.5% of license revenue. There was no cost of license revenue in 1995. These
costs were attributable to the introduction of the Company's AutoEnhancer/2000
software.
Cost of Other Services Revenue. Cost of other services revenue increased
21.1% to $2,931,000 in 1996 from $2,421,000 in 1995. Cost of other services
revenue also increased as a percentage of other services revenue to 116.4% in
1996 from 115.0% in 1995. Costs exceeded revenue in both years as a result of
expected cost overruns for one significant pilot direct delivery client, which
subsequently became a product licensee, as well as the increase in staffing of
both client support and product training in anticipation of future revenue.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased 46.4% to
$3,116,000 in 1996 from $2,129,000 in 1995. As a percentage of total revenue,
sales and marketing expenses increased to 16.2% in 1996 from 11.5% in 1995.
The increase in sales and marketing expenses during 1996 was primarily
attributable to increased staffing, commissions, including an increase of
approximately $350,000 in sales referral fees to third parties, and
promotional activities in conjunction with the launch of the Company's
AutoEnhancer/2000 software, as well as increased staffing to build third-party
channels for the Company's products and services.
Research and Development. Research and development expenses increased 254.3%
to $6,033,000 in 1996 from $1,703,000 in 1995. As a percentage of total
revenue, research and development expenses increased to 31.4% in 1996 from
9.2% in 1995. The increase in research and development expenses was primarily
attributable to significant product development efforts relating to the
Company's year 2000 products and services and mass change technologies,
including an increase in staffing effected through new hires, the acquisition
of Vista in January 1996 and internal transfers. At December 31, 1996, there
were 59 full-time employees in research and development compared to 17 at
December 31, 1995.
General and Administrative. General and administrative expenses increased
37.8% to $3,249,000 in 1996 from $2,357,000 in 1995. As a percentage of total
revenue, general and administrative expenses increased to 16.9% in 1996 from
12.7% in 1995. The increase in general and administrative expenses was
primarily due to additions to the Company's administrative staff to support
growth, higher professional fees and increases in other general corporate
expenses.
Interest Income (Expense), Net. Interest expense, net, increased 45.8% to
$296,000 in 1996 from $203,000 for 1995. The increase was primarily
attributable to increased average borrowings by the Company.
Provision (Benefit) for Income Taxes. The Company's benefit for estimated
income taxes increased to $143,000 in 1996 from $8,000 in 1995. The increase
was the result of an increase in gross deferred tax assets, caused primarily
by additional net operating loss carryforwards and tax credit carryforwards,
which resulted in the reversal of the net deferred tax liability recorded as
of December 31, 1995.
Minority Interest in Consolidated Subsidiary. The minority interest in
consolidated subsidiary decreased 44.2% to $24,000 in 1996 from $43,000 in
1995. The decrease was the result of the decreased profitability of Persist,
partially offset by a decrease in the Company's equity interest in Persist. At
December 31, 1996, the Company held a 63.7% equity interest in Persist
compared to a 69.5% equity interest at December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUE
Total revenue increased 135.1% to $18,505,000 in 1995 from $7,872,000 in
1994. This increase in revenue was primarily due to increased outsourcing
services revenue as well as an increase in other services revenue related to
one direct delivery client. International revenue increased 180.3% to
$1,079,000 in 1995 from $385,000 in 1994. As a percentage of total revenue,
international revenue increased to 5.8% in 1995 from 4.8% in 1994.
Substantially all of the Company's international revenue in 1995 was
attributable to revenue generated by the Company's Spanish subsidiary.
27
<PAGE>
Outsourcing Services. Outsourcing services revenue increased 130.0% to
$16,400,000 in 1995 from $7,130,000 in 1994. As a percentage of total revenue,
outsourcing services revenue decreased to 88.6% in 1995 from 90.6% in 1994.
The increase in outsourcing services revenue in absolute dollars was primarily
attributable to the addition of two significant outsourcing contracts that
commenced in the fourth quarter of 1994.
Other Services. Other services revenue increased 183.7% to $2,105,000 in
1995 from $742,000 in 1994. As a percentage of total revenue, other services
revenue increased to 11.4% in 1995 from 9.4% in 1994. The increase was
primarily attributable to the addition of a significant year 2000 pilot direct
delivery contract.
COST OF REVENUE
Cost of Outsourcing Services Revenue. Cost of outsourcing services revenue
increased 104.3% to $9,602,000 in 1995 from $4,700,000 in 1994. Cost of
outsourcing services revenue decreased as a percentage of outsourcing services
revenue to 58.5% in 1995 from 65.9% in 1994. The increase in costs was
primarily attributable to increased staffing to meet the demands of two new
outsourcing contracts. As part of one of these contracts, the Company agreed
to hire 53 of the client's employees in September 1994 to help deliver
services under this contract. The decrease in costs as a percentage of
outsourcing services revenue was primarily attributable to increased technical
staff productivity, which was partially offset by cost overruns on one
contract.
Cost of Other Services Revenue. Cost of other services revenue increased
658.9% to $2,421,000 in 1995 from $319,000 in 1994. Cost of other services
revenue increased as a percentage of other services revenue to 115.0% in 1995
from 43.0% in 1994. The increase in costs was primarily attributable to
increased staffing necessary to service a new year 2000 pilot direct delivery
contract entered into in the first quarter of 1995 and the expected cost
overruns associated with such contract.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased 481.7% to
$2,129,000 in 1995 from $366,000 in 1994. As a percentage of total revenue,
sales and marketing expenses increased to 11.5% in 1995 from 4.7% in 1994. The
increase in sales and marketing expenses was primarily attributable to
increased staffing, commissions and promotional activities to support the
Company's rapid growth.
Research and Development. Research and development expenses increased 204.1%
to $1,703,000 in 1995 from $560,000 in 1994. As a percentage of total revenue,
research and development expenses increased to 9.2% in 1995 from 7.1% in 1994.
The increase in research and development expenses was primarily attributable
to an increase in staffing in 1995.
General and Administrative. General and administrative expenses increased
83.7% to $2,357,000 in 1995 from $1,283,000 in 1994. As a percentage of total
revenue, general and administrative expenses decreased to 12.7% in 1995 from
16.3% in 1994. The increase in general and administrative expenses in absolute
dollars was primarily the result of additions to the Company's finance,
administrative and support staff as well as increases in professional fees and
other general corporate expenses to support the Company's growth.
Interest Income (Expense), Net. Interest expense, net increased 222.2% to
$203,000 in 1995 from $63,000 in 1994. The increase was primarily attributable
to increased average borrowings by the Company.
Provision (Benefit) for Income Taxes. The Company's benefit for estimated
income taxes increased to $8,000 in 1995 from a tax provision of $179,000 in
1994. The change was a result of lower income before provision for income
taxes in 1995, along with an increase in gross deferred tax assets, caused
primarily by an increase in tax credit carryforwards.
Equity in Loss of Less Than Majority-Owned Company; Minority Interest in
Consolidated Subsidiary. In 1994, the equity in loss of less than majority-
owned company was $97,000. This amount represented the Company's 40.0% share
of net losses realized by Persist. In 1995, the Company obtained a majority
ownership interest in Persist, requiring the Company to consolidate the entire
results of operations of Persist with the results of the Company.
Consequently, the share of net income of Persist attributable to its minority
stockholders, which was $43,000 in 1995, was included under the heading
"Minority Interest in Consolidated Subsidiary."
28
<PAGE>
QUARTERLY RESULTS
The following tables set forth a summary of the Company's unaudited
quarterly consolidated operating results for each of the five quarters in the
period ended March 31, 1997. This information has been derived from unaudited
interim consolidated financial statements that, in the opinion of management,
have been prepared on a basis consistent with the Consolidated Financial
Statements contained elsewhere in this Prospectus and include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
statement of such information when read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997
-------- --------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
Outsourcing services........... $ 2,244 $ 2,514 $2,611 $2,821 $2,519
License........................ -- 45 2,424 4,057 4,144
Other services................. 404 701 610 804 1,196
------- ------- ------ ------ ------
Total revenue (1).............. 2,648 3,260 5,645 7,682 7,859
------- ------- ------ ------ ------
Cost of revenue:
Outsourcing services........... 2,234 2,199 1,977 2,077 2,045
License........................ -- -- 40 122 127
Other services................. 506 672 816 938 1,289
------- ------- ------ ------ ------
Total cost of revenue.......... 2,740 2,871 2,833 3,137 3,461
------- ------- ------ ------ ------
Gross profit (loss)............. (92) 389 2,812 4,545 4,398
------- ------- ------ ------ ------
Operating expenses:
Sales and marketing............ 654 729 668 1,065 1,383
Research and development....... 1,360 1,401 1,506 1,766 1,634
General and administrative..... 748 707 763 1,031 925
------- ------- ------ ------ ------
Total expenses................. 2,762 2,837 2,937 3,862 3,942
------- ------- ------ ------ ------
Income (loss) from operations.. (2,854) (2,448) (125) 683 456
Interest expense, net........... (38) (61) (77) (120) 27
------- ------- ------ ------ ------
Income (loss) before income
taxes and minority interest... (2,892) (2,509) (202) 563 483
Provision (benefit) for esti-
mated income taxes............. (142) (62) (1) 62 48
------- ------- ------ ------ ------
Income (loss) before minority
interest...................... (2,750) (2,447) (201) 501 435
Minority interest in consoli-
dated subsidiary............... 38 (18) (5) (39) (29)
------- ------- ------ ------ ------
Net income (loss).............. $(2,712) $(2,465) $ (206) $ 462 $ 406
======= ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Outsourcing services........... 84.7% 77.1% 46.3% 36.7% 32.1%
License........................ -- 1.4 42.9 52.8 52.7
Other services................. 15.3 21.5 10.8 10.5 15.2
------ ----- ----- ----- -----
Total revenue (1).............. 100.0 100.0 100.0 100.0 100.0
------ ----- ----- ----- -----
Cost of revenue:
Outsourcing services........... 84.4 67.5 35.0 27.0 26.0
License........................ -- -- 0.7 1.6 1.6
Other services................. 19.1 20.6 14.5 12.2 16.4
------ ----- ----- ----- -----
Total cost of revenue.......... 103.5 88.1 50.2 40.8 44.0
------ ----- ----- ----- -----
Gross profit (loss)............. (3.5) 11.9 49.8 59.2 56.0
------ ----- ----- ----- -----
Operating expenses:
Sales and marketing............ 24.7 22.4 11.8 13.9 17.6
Research and development....... 51.4 43.0 26.7 23.0 20.8
General and administrative..... 28.2 21.6 13.5 13.4 11.8
------ ----- ----- ----- -----
Total expenses................. 104.3 87.0 52.0 50.3 50.2
------ ----- ----- ----- -----
Income (loss) from operations.. (107.8) (75.1) (2.2) 8.9 5.8
Interest expense, net........... (1.4) (1.9) (1.4) (1.6) 0.3
------ ----- ----- ----- -----
Income (loss) before income
taxes and minority interest... (109.2) (77.0) (3.6) 7.3 6.1
Provision (benefit) for esti-
mated income taxes............. (5.4) (1.9) -- 0.8 0.6
------ ----- ----- ----- -----
Income (loss) before minority
interest...................... (103.8) (75.1) (3.6) 6.5 5.5
Minority interest in consoli-
dated subsidiary............... 1.4 (0.5) -- (0.5) (0.4)
------ ----- ----- ----- -----
Net income (loss).............. (102.4)% (75.6)% (3.6)% 6.0% 5.1%
====== ===== ===== ===== =====
</TABLE>
- --------
(1) Revenue (in thousands) from related parties in each of the five quarters
in the period ended March 31, 1997 was $1,179, $1,327, $2,753, $1,184 and
$975, respectively, which represents 44.5%, 40.7%, 48.8%, 15.4% and 12.4%
of total revenue, respectively. See the Company's Consolidated Financial
Statements.
29
<PAGE>
The Company's quarterly revenue, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. A significant portion of the Company's revenue in any
quarter is typically derived from a limited number of large client
transactions. In addition, the sales cycle associated with these transactions
is lengthy and is subject to a number of uncertainties, including clients'
budgetary constraints, the timing of clients' budget cycles and clients'
internal approval processes. Accordingly, the timing of significant
transactions is unpredictable and, as a result, the Company's revenue and
results of operations for any particular period are subject to significant
variability. The complexity of certain projects and the requirements of
generally accepted accounting principles can also result in a deferral of
revenue recognition, in whole or in part, on a particular contract during a
quarter, even though the contract has been executed or payment has actually
been received by the Company. Quarterly fluctuations may also result from
other factors such as new product and service introductions or announcements
of new products and services by the Company's competitors, changes in the
Company's or its competitors' pricing policies, changes in the mix of
distribution channels through which the Company's products and services are
sold, the timing and nature of sales and marketing expenses, changes in
operating expenses, the financial stability of major clients, changes in the
demand for software maintenance products and services, foreign currency
exchange rates and general economic conditions. See "Certain Transactions--
Potential Fluctuations in Quarterly Performance."
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant growth since 1992, with its revenue
growing from $863,000 in 1992 to $19,235,000 in 1996. During this period, the
Company financed its operations and capital expenditures primarily with the
proceeds from sales of the Company's Convertible Preferred Stock and Common
Stock, borrowings, advance payments for services from clients and internally
generated cash flows. The Company's cash balances were $5,022,000, $7,388,000,
$264,000 and $339,000 at March 31, 1997 and December 31, 1996, 1995 and 1994,
respectively. The Company's working capital was $8,406,000, $8,218,000,
$2,218,000 and $1,267,000 at March 31, 1997 and December 31, 1996, 1995 and
1994, respectively.
The Company's operating activities used cash of $1,851,000, $2,342,000 and
$1,097,000 during the three months ended March 31, 1997 and the years ended
December 31, 1996 and 1995, respectively, and provided $41,000 during the year
ended December 31, 1994. The Company's use of cash during the three months
ended March 31, 1997 was primarily caused by a decrease in deferred revenue of
$2,356,000 and a reduction of other accrued expenses and current liabilities
of $485,000. These decreases were partially offset by net income of $406,000,
plus non-cash depreciation and amortization expense of $262,000. The Company's
use of cash in 1996 was primarily caused by operating losses of $4,921,000,
net of $854,000 of non-cash depreciation and amortization expense, and a net
increase in accounts receivable and unbilled revenue totaling $3,090,000.
These uses of cash during 1996 were offset somewhat by an increase in deferred
revenue of $3,262,000 and an increase in other accrued expenses and current
liabilities of $949,000. The use of cash in 1995 was principally caused by an
increase in accounts receivable and in net costs and earnings in excess of
billings on uncompleted contracts of $2,480,000, which was partially offset by
net income of $55,000, plus non-cash depreciation and amortization expense of
$443,000 and an increase in operating liabilities of $958,000. The cash
provided by operations during 1994 was attributable to net income of $305,000,
plus non-cash depreciation and amortization expense of $228,000, an increase
in operating liabilities of $519,000 and an increase in deferred taxes of
$179,000. These increases were partially offset by an increase in accounts
receivable and in net costs and earnings in excess of billings on uncompleted
contracts totaling $1,295,000.
The Company used cash of $448,000, $1,059,000, $972,000 and $125,000 for
investing activities during the three months ended March 31, 1997 and the
years ended December 31, 1996, 1995 and 1994, respectively. Investing
activities have consisted principally of the acquisition of property and
equipment, most notably computer equipment and software to support the growing
employee base and corporate infrastructure. Although the Company has no
significant commitments for capital expenditures in 1997, the Company expects
to continue
30
<PAGE>
to purchase property and equipment to further develop its infrastructure. The
Company's cash flows from investing activities in 1996 also included net cash
of $174,000 provided by the acquisition of Vista.
The Company's financing activities used cash of $60,000 during the three
months ended March 31, 1997 and provided cash of $10,555,000, $1,994,000 and
$421,000, during the years ended December 31, 1996, 1995 and 1994,
respectively. In March and October 1996, the Company raised aggregate net
proceeds of $11,684,000 in private placements of the Company's Convertible
Preferred Stock and Common Stock. Net proceeds from the sales of such shares
were used for the Company's general working capital needs, to make scheduled
debt payments and for treasury stock acquisitions. In 1995 and 1994, financing
activities consisted primarily of borrowings from banks and other lending
institutions.
In May 1995, the Company issued a secured subordinated note payable for
approximately $924,000 with a face value of $1,000,000 and interest payable at
10% per annum. The note is subordinate to any bank debt and is collateralized
by a second security interest in all of the assets of the Company. In
addition, the note carries a prepayment premium and contains various
restrictive covenants including, but not limited to, minimum earnings and
limitations on certain interest coverage, debt and equity ratios. The note
also included warrants with an ascribed value of approximately $76,000 for the
purchase of up to 312,500 shares of Common Stock for $1.60 per share. The
warrants expire on June 30, 2000. The Company intends to use a portion of the
net proceeds of this offering to repay in full the note. See "Certain
Transactions" and "Use of Proceeds."
In September 1996, the Company obtained a revolving line of credit facility
from a bank which bears interest at the bank's prime rate plus 0.5% (9.0% at
March 31, 1997). The maximum borrowing under this line of credit is $3,500,000
and is limited to 75% of certain receivables plus 50% of costs and estimated
earnings in excess of billings on uncompleted contracts, as defined by the
line of credit agreement. The line of credit expires and all borrowings are
payable in full on June 30, 1997. In addition to this line of credit, the
Company also entered into an equipment financing agreement in September 1996.
Under this agreement, the bank agreed to provide up to $1,500,000 for the
purchase of certain equipment (as defined by the agreement) through June 30,
1997. Ratable principal and interest payments are payable during the period
July 1, 1997 through June 1, 2000, and bear interest at the bank's prime rate
plus 1% (9.5% at March 31, 1997). Both of these agreements require the Company
to comply with certain financial covenants and are secured by all of the
assets of the Company. As of March 31, 1997, there were no borrowings
outstanding under the revolving credit facility and $562,000 was outstanding,
and $825,000 remained available, under the equipment financing agreement. The
Company and the bank are negotiating an extension of the line of credit
agreement beyond June 30, 1997. However, there can be no assurance that the
agreement will be extended.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. Cash
has been and the Company contemplates that it will continue to be invested in
interest-bearing, investment grade securities.
The Company believes that the net proceeds from the sale of Common Stock
offered by this Prospectus, together with cash generated from operations and
existing cash balances and advances available under its credit line agreements
will be adequate to finance its capital requirements for the next twelve
months. To the extent that such amounts are insufficient to finance the
Company's capital requirements, the Company will be required to raise
additional funds through equity or debt financing. No assurance can be given
that such financing will be available on terms acceptable to the Company, and,
if available, such financing may result in further dilution to the Company's
stockholders and higher interest expense.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
Earnings per Share. SFAS 128 specifies modifications to the calculation of
earnings per share from those currently utilized by the Company. Under SFAS
128, "basic" earnings per share will be calculated based upon the weighted
average number of
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common shares actually outstanding, and "diluted" earnings per share will be
calculated based upon the weighted average number of common shares and
dilutive potential common shares. SFAS 128 is effective in the Company's
fourth quarter of 1997 and will be adopted at that time. The adoption of SFAS
128 will have no effect on the reporting of the Company's results of
operations, as the Company has not been required to report historical earnings
per share. In addition, the adoption of SFAS 128 will have no effect on the
Company's financial position or cash flows.
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BUSINESS
OVERVIEW
The Company provides software products and services that enable
organizations to improve the productivity, quality and effectiveness of their
IT systems maintenance or software evolution functions. The Company's
solution, which employs software tools, methodologies and processes, is
designed to automate the typically labor-intensive processes involved in
conducting mass change and other software maintenance tasks. In 1996, the
Company released its first commercially available product, its
AutoEnhancer/2000 software, which is aimed at the industry's most pervasive
mass change challenge, the year 2000 problem. The Company also provides on a
fixed-fee basis software maintenance outsourcing services that employ the
Company's proprietary software tools, methodologies and processes to generate
productivity gains through the automation of the software evolution process.
The Company has established relationships with a number of leading value
added integrators and distributors, including Bull, a related party, CIBER,
Inc., Computer Sciences Corp., IBM Global Services and Keane, Inc., which
license the Company's software tool for use in serving their clients. In
addition, the Company licenses its AutoEnhancer/2000 software directly to end
users, which include Met Life and Merrill Lynch. Representative outsourcing
clients of the Company include Advanced Micro Devices, Inc., Computervision,
MicroAge Computer Center, Inc., NYNEX and Stratus. In May 1997, the Company
entered into a non-binding letter of intent with VIASOFT to form a joint
marketing arrangement that would combine complementary product and services
offerings in a "best practice" suite of year 2000 solutions.
INDUSTRY BACKGROUND
With the globalization of markets and increased competitive pressures to
reduce operating costs, shorten time to market, improve product quality and
increase customer responsiveness, large organizations throughout the world
have become increasingly dependent on IT to organize and manage their
businesses and serve their customers. Many of these organizations utilize
large mainframe computer systems, client/server systems or a combination
thereof for the information processing requirements of their enterprises.
These IT systems contain the core knowledge and processes that support
mission-critical operations, and maintaining the investment in these IT
systems is a requirement for organizations worldwide.
A key challenge facing organizations has been to modify, update and adapt
their IT systems and evolve their software to respond to a changing and more
competitive business environment. This challenge has increased with the
broadening complexity of IT and the continued evolution of mainframe systems,
as well as the advent of distributed, client/server computing and the
proliferation of third-party enterprise software applications. At the same
time, the pace of change in business environments has accelerated, requiring
organizations to continually evolve their IT systems and environments to adapt
to changing business conditions and processes. This software evolution process
is typically time-consuming, labor-intensive and expensive, and consists not
only of fixing bugs and maintaining the current level of software performance
and functionality, but also making enhancements, implementing mass changes to
the code and migrating applications to new computing platforms.
Industry analysts estimate that within the established worldwide IT
infrastructure, up to 200 billion lines of COBOL software code have been
written to support applications, many of which are mission-critical. In
addition, between 60% to 80% of the average annual IT application development
budget is spent on the maintenance of legacy systems. Although the maintenance
function within IT departments has received little management attention
historically, the impending year 2000 problem, with an estimated cost of
between $300 and $600 billion to fix, represents the most significant IT
maintenance challenge to date.
One of the most crucial software evolution challenges currently facing IT
departments is the cost-effective implementation of mass changes to
application systems and their associated databases. A mass change software
modification initiative is the process of effecting a change to the way a
basic variable is interpreted and acted
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upon by a computer program and associated databases in which the variable may
appear or be used thousands, or even millions, of times. The primary goal of a
mass change initiative is to allow organizations to evolve their applications
to accommodate changes in business practices or conditions by modifying
frequently occurring variables without altering or impacting the underlying
logic or function of the program. In large mainframe computing environments, a
typical mass change initiative may involve sorting through hundreds of
millions of lines of code to locate and then correct the targeted variables.
Mass change problems have become more acute for businesses with the increase
in the complexity and volume of computer data, coupled with the use of
disparate IT platforms, operating systems and languages.
Examples of mass change problems include the year 2000 problem, which is the
inability of certain computer systems to properly interpret dates for the year
2000 and beyond; the European Union's expected conversion to the euro
currency; the anticipated increase in the number of digits in Japan's
telephone numbers; the increase in the number of characters in Australia's
medical account classification codes; and the extension of the number of
digits or other characters in zip codes, product codes for manufactured goods
and account numbers for service providers. Additional mass change needs are
being driven by internationalization and localization requirements, weights
and measures standardization, identity-code changes, mergers and acquisitions
and privatization of government agencies.
Presently, the most pervasive mass change problem is the year 2000 problem,
which will affect IT systems in organizations worldwide. To make mission-
critical applications "year 2000 compliant," organizations will be required
over the next several years to devote considerable IT resources, including
investment in software tools and processes, personnel, time and other
resources, to undertake large-scale mass change initiatives. A typical year
2000 renovation project includes an assessment phase, which determines the
scope and impact of the year 2000 problem on an enterprise; a correction
phase, which entails the planning and implementation of source code
renovation, including the identification of all date-sensitive variables and
their associated corrections; and a testing phase that ensures the integrity
of a year 2000 renovation. To date, most large organizations that have begun
to address the year 2000 problem have focused on the initial assessment phase,
and relatively few have begun the more critical correction and testing phases.
To respond to the foregoing challenges in software evolution, many large
organizations are seeking to improve the software evolution process. With the
lack of internal resources to incorporate new and developing technologies,
select and train personnel and develop efficient methodologies to improve IT
applications, many large organizations are seeking ways to outsource their IT
requirements, particularly on a fixed-price, fixed-time frame basis in order
to minimize the risks and costs associated with such large-scale technology
requirements. In addition, industry analysts acknowledge that there is a
growing shortage of IT professionals, which is being exacerbated by the year
2000 problem. These trends have resulted in increased demand for automated
software tools that supplement traditional, mostly manual, maintenance methods
that are often tedious, time-consuming and error-prone.
Historically, software development tools have been targeted to address the
front end of the software development cycle--the analysis, design and coding
of an application--rather than on the maintenance or evolution of the
application. Existing tools and processes to address the software evolution
and mass change needs of organizations typically provide limited
functionality, lack a high degree of automation and are not designed to
address the full scope of the maintenance process. In addition, many existing
solutions do not emphasize productivity and do not address the broad range of
requirements needed to manage the software evolution process across
heterogeneous computing environments.
With software evolution becoming an increasing burden in the operation of
mission-critical systems, organizations are actively seeking solutions that:
(i) provide comprehensive software evolution capabilities to accommodate
continually changing business needs; (ii) automate and streamline the software
evolution function; (iii) provide a comprehensive solution to mass change
initiatives, including the year 2000 problem; (iv) are compatible with
multiple platforms, operating systems and programming languages; and (v)
provide measurable productivity gains.
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PERITUS SOLUTIONS
Peritus offers comprehensive products and services that enable organizations
to improve the productivity, effectiveness and quality of the software
evolution process. The Company's solutions employ a combination of tools,
processes, skilled professionals and methodologies. The Company's underlying
technology consists of its Peritus Intermediate Language ("PIL") and
proprietary tools that can be implemented to address mass change or other
software maintenance challenges.
MASS CHANGE SOLUTIONS
Proven Technology for Mass Change. The Company's Mass Change Engine, which
is based on PIL and other proprietary technologies, converts source code from
a variety of programming languages into PIL in order to perform analysis,
correction and testing on the code during mass change maintenance initiatives.
The Mass Change Engine is designed to automate the labor-intensive code
maintenance function, thereby increasing productivity, and can be customized
to provide function-specific mass change capabilities. The Mass Change Engine
operates across multiple platforms, languages and operating systems.
Comprehensive Year 2000 Renovation Tool. The Company's year 2000 products
and services provide a comprehensive renovation solution for organizations
seeking to address the year 2000 problem. The Company's AutoEnhancer/2000
software, which is based on its Mass Change Engine, is also designed to
provide flexibility in addressing the critical identification, correction and
verification components of a year 2000 renovation. The AutoEnhancer/2000
software is designed to be interoperable with third-party assessment,
extraction and testing tools.
SERVICE OFFERING COMPONENTS
Comprehensive Software Evolution Services. The Company's service offerings
are designed to address software evolution needs through tools and processes
that provide productivity gains by automating and improving the software
evolution process. These services are generally offered on a fixed-fee basis,
and the client can realize the resulting productivity gains in the form of
reductions in internal IT costs, increases in throughput, improved turn-around
time and/or improved software quality. The Company's current service offerings
include outsourcing, in which Peritus assumes responsibility for the evolution
of a client's software, and technology transfer services, in which Peritus
provides its methodologies and tools to clients in-house, enabling them to
implement enhanced, repeatable processes for software evolution.
Team-Based Process Methodologies. The Company employs team-based
methodologies in its service offerings. Teams typically consist of both
Company and client employees, with a Company project manager supervising the
process. In the delivery of its services, the Company combines concepts from
disciplines such as scientific inquiry, operations research and psychology
with engineering "best practices" (such as formal inspections, cross
functional teams and quality initiatives) to create a workflow paradigm that
optimizes a team's ability to leverage its combined talent, knowledge and
experience.
Advanced Technology Platform. The Company has developed its core
technologies through the use of advanced mathematical algorithms and
techniques. To achieve productivity gains, the Company utilizes proprietary
tools that better enable maintenance teams to rapidly locate and fix bugs and
provide software enhancements. These tools include a software maintenance
assistance tool designed to automate the process of logical code analysis, a
business rules extraction tool and a groupware tool designed to facilitate
workflow coordination.
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STRATEGY
The Company's objective is to establish leadership in providing tools,
processes and services that significantly increase productivity and quality in
software evolution. The Company's strategy includes the following key
elements:
Establish Leadership in Software Evolution Technology. The Company intends
to continue to develop its core technologies by enhancing its Peritus
Intermediate Language and related technologies in the areas of mass change,
business rules extraction, verification, testing and code analysis. The
Company is currently developing specific versions of its Mass Change Engine to
address mass change market opportunities in addition to the year 2000 problem.
Leverage Year 2000 Opportunities. The Company has focused a significant
portion of its recent research and development expenditures on enhancing
current products and technologies designed to address year 2000 market
opportunities. The Company intends to continue marketing its year 2000
products and services through both direct and indirect channels. The Company
believes that the year 2000 problem has heightened industry concerns regarding
software maintenance. The Company anticipates that these concerns will serve
as a catalyst in helping organizations to view software maintenance as a
dynamic, evolutionary process capable of addressing mass change problems and
enabling organizations to improve the productivity, effectiveness and quality
of their software maintenance. In addition, the Company intends to leverage
the relationships developed through its year 2000 products and services into
long-term outsourcing engagements and future mass change sales opportunities.
Develop Multiple Distribution Channels. The Company currently markets its
products through a combination of direct and indirect channels. The Company
believes that indirect channels are an important part of its distribution
strategy and plans to continue to develop these channels. Currently, the
Company has agreements with 20 value added integrators and distributors that
license its AutoEnhancer/2000 software. The Company's value added integrators
operate on a worldwide basis, and its distributors are currently located in
the United States, Canada, Italy and Japan. During 1997, the Company expects
to enter into additional value added integrator and distribution agreements,
including agreements with additional government systems integrators to
penetrate state, federal and foreign government agencies. The Company also
intends to work with several complementary software and services providers to
create a "best practice" suite of year 2000 solutions. In May 1997, the
Company entered into a non-binding letter of intent with VIASOFT to form a
joint marketing arrangement that would combine complementary product and
service offerings. The Company also intends to continue to expand its direct
sales organization.
Leverage Existing Client Base. The Company has established strong long-term
client relationships, which often involve multiple contracts over several
years. The Company intends to leverage existing client relationships by cross-
selling other products and services to its clients. For example, the Company
believes that clients that purchase year 2000 products and services will
likely have other mass change and software evolution needs, which the Company
intends to target.
Continue to Expand Service Offerings. The Company intends to expand its
service offerings by introducing insourcing services to organizations
interested in retaining the maintenance function in-house and by continuing to
offer outsourcing and technology transfer services. Through its resources in
the United States, Spain and India, the Company has developed "virtual"
outsourcing teams that provide outsourcing coverage and support 24 hours a
day. The Company intends to increase productivity and capacity among its
virtual outsourcing teams by hiring additional overseas personnel during 1997.
Pursue Strategic Opportunities. Although the Company's growth to date has
occurred principally through internally developed products and services, the
Company is pursuing additional strategic alliances with value added
integrators to enhance the scope of the products and services offered to end
users. In addition, the Company believes that the opportunity exists to expand
its products and services through the acquisition of complementary businesses
and technologies. Although the Company currently has no commitments or
agreements with respect to any such acquisition, management intends to analyze
potential acquisitions and to pursue those opportunities that complement or
supplement its business strategy.
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TECHNOLOGY
The Company's core technologies consist of its Peritus Intermediate
Language, its Mass Change Engine, other computer-based tools and formal
mathematical techniques.
The Peritus Intermediate Language. The Company has developed its Peritus
Intermediate Language to support accurate diagnosis of why a program functions
incorrectly. PIL is based on the mathematical theory that all computations can
be expressed in a small number of abstract instructions into which existing
computer languages can be translated. PIL consists of 13 abstract
instructions, and currently the COBOL, RPG, C and PL/1 programming languages
have been translated by the Company into PIL. When data enter a computer
program, their paths can be traced by the values assigned to them by the
instructions in that program. In contrast, PIL can be used to trace the paths
of all data that fall into mathematically describable classes. As a result, if
the data are in a certain state when a program completes or aborts, it is
possible, using PIL, to determine the initial conditions of these data before
the program was executed. In addition, the use of PIL allows tools to be built
that can verify that a program is logically correct by specifying pre and post
conditions of classes of data rather than relying on the traditional method of
testing, which is based on trial and error using selected data points.
Mass Change Engine. The Company's Mass Change Engine is designed to address
mass changes to IT systems (such as expansion of data fields or changes in
product or part identifiers) by accepting as input the identified data
structure and desired rules of transformation. The Mass Change Engine then
examines the entire set of computer programs to trace all related data and
instructions, computes the necessary changes that are the result of that
simple change requirement and makes corresponding adjustments in all programs
and data so that only the desired change occurs without impacting the
underlying logic. These tasks are accomplished through the use of an adaptive
seed generator based on neural network technology, the creation of a
repository of relationships between the data and instructions using PIL and
the use of propagations that determine the relationship between variables and
seeds using a set of identification rules and information embedded in the
repository. The Company's Mass Change Engine can be adapted to address
specific mass change needs. The Company's AutoEnhancer/2000 software is an
example of an extension of the Mass Change Engine.
Other Computer-Based Tools. The Company's software maintenance tools have
been specifically designed to address the needs of the software maintenance
practitioner and are used primarily by the Company's outsourcing teams. The
Company anticipates that certain of its tools may be released as commercial
products in the future. The Company's current computer-based tools include:
. Peritus Code Analyzer ("PCA")--PCA is a software maintenance assistance
tool designed to automate the process of logical code analysis. The tool
is used to discover and correct defects, implement enhancements, verify
properties of software (such as database integrity or security
properties), migrate from one language to another and update systems or
programs and data for specific enhancements (such as those required by
the year 2000 problem).
. Business Rules Extraction--The Company's business rules extraction tool
analyzes complex data structures and computer instructions within an
information system and determines and distills the business rules that
are embedded throughout the system. The extraction of business rules
decreases the effort involved in porting, migrating, reengineering,
simplifying and evolving software.
. Peritus Control System ("PCS")--PCS is a workflow and productivity-
enhancing groupware tool designed to support the Peritus model for
workflow coordination and accumulation of maintenance-related knowledge
and experience.
Formal Mathematical Techniques. Peritus has developed a discipline that
makes the analysis of software a more reliable activity based on the technique
of logical code analysis. Logical code analysis facilitates the understanding
of unfamiliar code and the isolation of the code specifically related to the
maintenance task and executes the required changes without impacting the
underlying logic. The Company's formal mathematical techniques are an integral
component of its core technologies and serve as the basis for the automation
capabilities of those technologies.
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PRODUCTS AND SERVICES
The Company's products and services are designed to deliver increased
productivity through tools, processes, skilled professionals and
methodologies. The Company initially provides clients with process and
methodology before introducing its products and technologies, thus laying the
foundation for the successful use of the Company's products. The Company's
current product offering includes its AutoEnhancer/2000 software, and its
current and proposed service offerings include software maintenance
outsourcing, technology transfer and insourcing services.
AutoEnhancer/2000 Software
The Company's AutoEnhancer/2000 software is a comprehensive solution
designed to address the correction phase of a year 2000 renovation. This
software tool currently processes COBOL, PL/1 and RPG computer languages. It
contains a user-friendly graphical user interface ("GUI") and can be easily
modified to interoperate with third-party assessment and testing tools. In
1996, the Company began licensing a COBOL version of this product to end users
and value added integrators. As of April 30, 1997, the AutoEnhancer/2000
software was installed in more than 45 installations.
Through a series of integrated and automated functions, the Company's
AutoEnhancer/2000 software identifies date-sensitive variables and corrects
the source code using date-field expansion or windowing techniques. In
addition, the tool generates bridges, wrappers, and data conversion programs
that enable the modified code to interface with remaining non-renovated
programs and data. The modifications are then verified through the use of
logical code analysis techniques to facilitate the extensive testing
requirements.
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The following table highlights the various steps in which the
AutoEnhancer/2000 software addresses the correction phase of a year 2000
renovation:
AUTOENHANCER/2000 SOFTWARE
<TABLE>
<CAPTION>
FUNCTION FEATURES BENEFITS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SEGMENTATION . Load source code into program . EBCDIC to ASCII encoded accurately
. Perform pre-renovation compile and recoverably
. Establish source code boundary . Strict source code control
. Identify print and display outputs environment established
. Perform dataset name unification . Source code completeness verified
. Source code compliability
validated
. Data synonyms established
- -------------------------------------------------------------------------------------------
IDENTIFICATION . Convert source code into PIL . Logic of code unraveled for
. Perform record name unification automated analysis
. Select bridging strategies . Record synonyms established
. Find the date-sensitive items . Bridging strategies specified
through propagation . Date-sensitive variables and
. Resolve ambiguous identification constants identified
conditions . Procedure-division uses of date-
. Facilitate identification sensitive items identified
completeness using Adaptive Seed . Accuracy and completeness of
Generator identification verified
- -------------------------------------------------------------------------------------------
CORRECTION . Create and apply correction . Source code corrected
transactions
. Create and apply harmonization . Redefines realigned
transactions . All identified uses of date-
. Resolve correction warnings sensitive items corrected
- -------------------------------------------------------------------------------------------
BRIDGE . Generate bridge programs by . Interoperability of renovated and
building wrappers, filters and unrenovated code established
converters
- -------------------------------------------------------------------------------------------
ADAPTATION . Identify Job Control Language . Date-sensitive JCL identified and
(JCL) date-sensitive issues corrections suggested
. Identify record size changes
. Create JCL correction plan
- -------------------------------------------------------------------------------------------
VERIFICATION . Reconcile planned and implemented . Intended and actual changes
corrections reconciled
. Perform post-renovation compile and . Verification to ensure that
compare to pre-renovation compile changes do not impact compiler
results results
- -------------------------------------------------------------------------------------------
PACKAGING . Package renovated source code and . Source code returned to facilitate
generated source code for return replacement and testing
to client
</TABLE>
- --------------------------------------------------------------------------------
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Peritus offers extensive training and support to its software licensees. The
licensee's renovation engineers participate in both formal and on-the-job
training supported by the Company's expert renovation engineers. This training
and support facilitates successful implementation and deployment of
AutoEnhancer/2000 software in the licensee's environment. The Company also
provides licensees with client technical support as well as on-site or remote
consulting.
The Company licenses its AutoEnhancer/2000 software directly and indirectly
(via distributors) to end users and to value added integrators for their use
in addressing the year 2000 needs of their clients. License fees to end users
are fixed, with the amount of the fee based on the estimated total lines of
code to be processed, and license fees to value added integrators and
distributors are generally royalties based on lines of code processed or to be
processed.
Outsourcing Services
The Company offers customized software maintenance outsourcing services to
clients. In an outsourcing project, the Company assumes responsibility for the
evolution of a client's software, including bug fixing, enhancements,
applications migration and porting. The Company's outsourcing services address
the maintenance needs of application software, system software, embedded
software and software products and are designed to provide productivity gains
regardless of platform, operating system, language or software function. In
the delivery of its outsourcing services, the Company uses a number of
proprietary technologies. Compared to traditional software maintenance
methods, the Company's technologies allow faster de-bugging by identifying and
excluding irrelevant variables and by tracing the cause of errors from the
known output resulting from such errors. In addition, the Company may from
time to time directly provide year 2000 renovation services for its clients.
Outsourcing services are performed at both Company and client locations with
a team of Company employees, or a team comprising Company and client
employees. Formal training, support and continuous improvement are part of
every outsourcing service offering. The Company's self-directed outsourcing
teams understand and exploit organizational dynamics, workflow management and
proprietary technology to enhance the productivity, responsiveness and quality
of the software evolution process. Individual team members develop a deep and
broad understanding of many programming languages and applications, as well as
maintenance technologies and de-bugging methodologies.
In connection with the delivery of its outsourcing services, the Company
assesses the IT costs of a client and in general agrees to provide IT services
at a price targeted at 30% below the client's IT costs that are identified
during a detailed upfront assessment. This savings is often realized in the
first year. In addition, the Company's outsourcing services are designed to:
. Re-deploy key resources to mission-critical applications
. Enhance control of the maintenance function
. Improve turnaround time and quality of response
. Reduce dependency on specific individuals and specific domain knowledge
A typical outsourcing engagement represents a multi-million dollar, multi-
year, fixed-price contract that specifies service rather than staffing levels.
Technology Transfer Services
The Company offers technology transfer services to assist organizations that
seek to increase the productivity of their software evolution activities while
keeping their software maintenance activities in-house. This technology
transfer program transfers the organizational model and workflow methodology
of the Company's software maintenance outsourcing solutions to enable clients
to implement enhanced, repeatable processes for software evolution.
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With respect to technology transfer services, the Company targets an
increase in client productivity of 25% within six months. Productivity gains
are measured against pre-determined metrics that are established during a
detailed upfront assessment of the client's applications and workflow. A
typical technology transfer engagement consists of training multiple teams of
client personnel in the Company's methodology. Engagements have a duration of
four to six months with approximately 14 days of on-site delivery and
coaching.
During 1997, the Company plans to introduce insourcing services, which will
combine the Company's technology transfer services with on-site management of
the Peritus-trained client teams. In an insourcing engagement, the Company
will participate with the client management to ensure that the teams
accurately implement the Company's approach and perform at expected
productivity levels. Typical insourcing engagements are expected to have two
revenue components: a fee for services and a royalty tied to the client's
productivity gains.
SALES AND MARKETING
The Company offers its products and services to clients through both direct
and indirect channels, which include relationships with value added
integrators that use the Company's technology as an integral part of their
overall solutions, as well as domestic and international distributors. As of
March 31, 1997, the Company had 14 full-time employees in sales and marketing.
Direct Sales
The Company sells and supports its products and services directly through
its sales force located in Billerica, Massachusetts; Trumbull, Connecticut;
Schaumburg, Illinois; Denver, Colorado; Ontario, Canada and Barcelona, Spain.
The Company plans a significant expansion of its sales force through regional
offices in the Northeast, Mid-Atlantic, West and Midwest regions of the United
States.
Indirect Sales
The Company currently has agreements with 20 value added integrators and
distributors. The Company's value added integrators include large systems
integrators, IT consulting organizations and other providers of IT services
and solutions that use the Company's AutoEnhancer/2000 software to perform
year 2000 renovation projects for their clients. The Company regularly offers
sales training to its value added integrators. The Company's distributors are
located in the United States, Canada, Italy and Japan and are authorized by
Peritus to sublicense the Company's products and/or services to end users or
system integrators in their respective territories. In May 1997, the Company
entered into a non-binding letter of intent with VIASOFT to form a joint
marketing arrangement that would combine complementary product and service
offerings in a "best practice" suite of year 2000 solutions. See "Risk
Factors--Dependence on Third-Party Channels; Potential for Channel Conflict."
Below is a list of the Company's value added integrators and distributors
with which the Company has agreements as of April 30, 1997:
Analyst International Corporation Integris, a Bull Company
ACTC Technologies, Inc. I-NET, Inc.
Bell Communications Research, Inc. Japan Third Party Co., Ltd.
BFL Software Limited Keane, Inc.
CIBER, Inc. LGS Group, Inc.
Computer Sciences Corp. Netsiel S.p.A.
Comtex Information Systems, Inc. PKS Systems Integration, Inc.
Coritel, S.L. PRT Corp. of America
Datamatics Ltd. Stratagem, Inc.
IBM Global Services Vital Computer Service
International, Inc.
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Marketing
The Company's marketing organization works closely with the sales
organization in the development of Company marketing literature, market
research to assist in strategic planning and tactical decision making, trade
show programs and exhibit planning, advertising and public relations support.
In 1997, the Company began "Powered by Peritus," a new marketing and
advertising campaign. It comprises several programs, including a direct mail
initiative aimed at potential year 2000 end-user licensees, new channel
candidates and outsourcing prospects. The Company is also conducting a
significant advertising campaign for its year 2000 products.
CLIENTS
The Company offers its products and services to end users in a number of
industries. Below is a partial list of the Company's clients, each of which
has accounted for at least $200,000 of revenue since January 1, 1995:
Advanced Micro Devices, Inc. Metropolitan Life Insurance
Bell Communications Research, Inc. Company
Bull HN Information Systems Inc. MicroAge Computer Center, Inc.
Computervision Corporation Microcom, Inc.
The First National Bank of Boston NYNEX
Jostens Learning Corporation Prudential Life Insurance
Stratus Computer, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
UNISYS Corporation
To date, the Company's revenue has been dependent on a few major clients,
including Bull, Stratus, Computervision, Met Life, IBM and Merrill Lynch.
During the three months ended March 31, 1997, Merrill Lynch, Met Life and IBM
represented approximately 22.7%, 13.4% and 10.6% of the Company's total
revenue, respectively. During 1996, Bull, Merrill Lynch and Stratus
represented approximately 29.0%, 14.6% and 12.1% of the Company's total
revenue, respectively. During 1995, Bull, Stratus and Computervision
represented approximately 50.3%, 12.9% and 11.0% of the Company's total
revenue, respectively. During 1994, Bull and Computervision represented
approximately 51.7% and 29.3% of the Company's total revenue, respectively. In
addition, the Company's ten largest clients represented approximately 79.2%,
77.9%, 90.5% and 92.1% of the Company's total revenue in the three months
ended March 31, 1997 and the years ended December 31, 1996, 1995 and 1994,
respectively. See "Risk Factors--Concentration of Clients and Credit Risk."
While each client engagement differs, the following examples illustrate the
types of business needs the Company has addressed:
Merrill Lynch--AutoEnhancer/2000 Licensee. Merrill Lynch, a global financial
services concern, evaluated the Company's AutoEnhancer/2000 software in 1996
as part of its process of developing a comprehensive solution to its year 2000
renovation efforts. Along with a number of other vendors, Peritus was invited
to conduct two pilot programs, which were designed to demonstrate the tool's
ability to automate the identification and correction tasks of a year 2000
conversion. In December 1996, Merrill Lynch entered into a direct end-user
license for the AutoEnhancer/2000 software to support its data expansion
renovation efforts. Merrill Lynch notified the Company that the tool was among
those selected based upon the accuracy of its identification function and the
level of automation provided. Merrill Lynch has established a renovation
center in New York that provides divisions with remote access to perform the
renovations, and Peritus has trained more than 35 of Merrill Lynch's
renovation engineers.
Computer Sciences Corp.--AutoEnhancer/2000 Value Added Integrator. Computer
Sciences Corp. ("CSC"), an international provider of IT services, provides a
dedicated national practice that addresses the year 2000 problem. CSC's
Catalyst 2000(R) service includes a renovation center designed to process
large amounts of code through the correction phase. To achieve the desired
throughput, the CSC renovation center sought tools
42
<PAGE>
that would automate the process. After evaluating several tools and
technologies, CSC chose the Company's AutoEnhancer/2000 software for its center
and signed a strategic agreement that provided for a usage-based license. Since
the initiation of the agreement, Peritus has trained CSC renovation engineers
to work with the Peritus technology in this renovation center. See "Certain
Transactions."
NYNEX--Outsourcing Engagement. In mid-1995, NYNEX began exploring ways to
reduce costs and improve the process of maintaining its IT applications.
Peritus was invited to bid on an outsourcing engagement that involved the
maintenance of a budget and planning application. After a competitive process,
NYNEX awarded the contract to Peritus for a number of reasons, including the
fixed-price nature of the bid and the commitment to improved productivity. In
April 1996, NYNEX extended the contract to include additional applications.
CLIENT TECHNICAL SUPPORT
In connection with the licensing of its products, the Company provides its
clients with technical support and advice, including problem resolution,
installation assistance, error corrections and product enhancements released
during maintenance. The Company believes that a high level of service and
support is critical to its success and represents an important competitive
advantage. Furthermore, the Company believes that a close and active service
and support relationship is important to client satisfaction and provides the
Company with important information regarding evolving client requirements. The
Company provides each of its significant clients with a dedicated client
technical support representative whose primary responsibility is to resolve
questions and concerns and act as a liaison between the client and the Company.
In addition, the Company provides toll-free telephone support, as well as
access to electronic bulletin boards and other forms of electronic
communication to provide clients with the latest information regarding the
Company's products and services. Client technical support fees related to the
Company's year 2000 products are typically 15% of license fees and are capped
at $200,000 annually per direct licensee. As of March 31, 1997, the Company's
client technical support organization consisted of ten full-time employees.
RESEARCH AND PRODUCT DEVELOPMENT
The Company believes that its future success depends in large part on its
ability to maintain and enhance its current product line, develop new products,
maintain technological competitiveness and meet an expanding range of client
requirements. The Company plans to continue to enhance its products and develop
new products, including the development of new versions of its mass change
software and the commercialization of its internally used outsourcing tools and
methodologies.
As of March 31, 1997, the Company's research and development organization
consisted of 57 full time employees, 15 of whom were located at the Company's
facility in Schaumburg, Illinois and 42 of whom were located at the Company's
Billerica, Massachusetts headquarters. In January 1997, the Company began
research and development activities in Bangalore, India. The Company's research
and development expenses were $6,033,000, $1,703,000 and $560,000, or 31.4%,
9.2% and 7.1% of total revenue, for the years ended December 31, 1996, 1995 and
1994, respectively.
The Company has generally relied on internal efforts and resources to develop
its software and methodologies. However, in some limited cases, the Company has
contracted with various firms, certain of which are located in India and
Canada, to develop materials, processes, software or portions of software for
and on behalf of the Company. In January 1996, the Company acquired Vista to
gain additional technologies in user interface and software behavior modeling.
COMPETITION
The market for the Company's software products and services, including its
solutions for the year 2000 problem, is intensely competitive and characterized
by rapid changes in technology and user needs and the frequent introduction of
new products. The Company's competitors include year 2000 software vendors,
year 2000 service providers and outsourcing service providers.
43
<PAGE>
Vendors of year 2000 software products generally focus on a particular phase
of a year 2000 renovation, such as assessment, correction or testing. The
Company's AutoEnhancer/2000 software primarily addresses the correction phase
of a year 2000 renovation. The Company believes that the principal competitive
factors affecting competition in the year 2000 software market include product
functionality, degree of automation, speed of throughput, product performance
and reliability, ability to respond to changing client needs, ease of use,
training, quality of support and price. The Company's principal and potential
competitors in the market for year 2000 software include Computer Associates
International, Inc., Compuware Corporation, Micro Focus Group Public Limited
Company, Platinum Technology, Inc., SEEC, Inc. and VIASOFT.
The Company provides year 2000 services primarily through its relationships
with value added integrators. Peritus believes that these value added
integrators compete on the basis of service, the expertise and experience of
the service personnel, the ability of such personnel to provide solutions to
application problems and price. Principal competitors in this market include
AMDAHL, Cap Gemini America, Computer Horizons Corp. and Information Management
Resources, Inc. Many smaller local and regional organizations also compete in
the year 2000 services market.
The Company also faces competition in the provision of its software
maintenance outsourcing services. The Company believes that the principal
competitive factors in the market for outsourcing services include price, the
ability to provide productivity guarantees, strong client relationships,
comprehensive delivery methodologies, responsiveness to client needs, depth of
technical skills and reputation. The Company's principal competitors in this
market include not only in-house IT departments and systems integrators such as
the Big Six accounting firms but also outsourcing service providers such as
Computer Sciences Corp., Electronic Data Systems Corporation, IBM Global
Services, Keane, Inc. and PKS.
A number of the Company's competitors are more established, benefit from
greater name recognition and have substantially greater financial, technical
and marketing resources than the Company and certain of the Company's value
added integrators and distributors. Moreover, other than the need for technical
expertise, there are no significant proprietary or other barriers to entry in
the year 2000 industry. There can be no assurance that the Company's products
and services or the solutions offered by the Company's value added integrators
and distributors will compete effectively with those of their respective
competitors. The Company's value added integrators and distributors may also
offer or develop products and services that compete with the Company's products
and services. There can be no assurance that those clients will not give higher
priority to the sales of these or other competitive products and services.
INTELLECTUAL PROPERTY
The Company relies on a combination of copyright, trade secret, patent,
service mark, and trademark laws and license agreements to protect its
proprietary rights in technology. In addition, the Company currently requires
its employees and consultants to enter into nondisclosure and assignment of
invention agreements to limit use of, access to and distribution of its
proprietary information.
The Company's business includes the maintenance, evolution, repair and
development of software applications, system software and other deliverables,
including written specifications and documentation in connection with specific
client engagements. Ownership of software and associated deliverables created
for clients is generally retained by or assigned to the client, and the Company
does not retain an interest in such software or deliverables. The source code
for the Company's proprietary software is generally protected as trade secrets
and as unpublished copyrighted works. However, the Company has entered into
source code escrow agreements with a limited number of its licensees requiring
release of source code in certain circumstances. Such source code escrow
agreements usually limit the use and disclosure of such source code in the
event that it is released.
In addition, the Company has entered into license agreements with a limited
number of clients that allow these clients access to and use of the Company's
AutoEnhancer/2000 software source code for certain purposes. Access to the
source code may increase the likelihood of misappropriation or misuse by third
parties.
44
<PAGE>
The Company's business also includes licensing of the Company's proprietary
software, methodologies and related services to end users, as well as to value
added integrators and distributors authorized to provide services to third
parties. In general, such licensing of the Company's proprietary software,
methodologies and related services to a licensee is a limited term, limited
use, non-exclusive license that contains restrictions on copying, disclosure,
usage, decompiling and transferability. In particular cases, however, a license
agreement may have certain provisions that are exclusive in some manner. Within
these licensing agreements the Company seeks to avoid disclosure of its trade
secrets, including, but not limited to, generally requiring those persons with
access to the Company's proprietary information to execute confidentiality
agreements restricting use of and access to the Company's confidential
information.
The Company generally relies on internal efforts in order to develop its
software and methodologies. However, in some limited cases the Company has
contracted with various firms, certain of which are located in India and
Canada, to develop software or portions of software for and on behalf of the
Company. Software development by a contractor for the Company is done pursuant
to agreements that generally assign all rights to the Company and contain
nondisclosure provisions. Such software developed by a contractor may be merged
with software that the Company has developed using its internal employees. In
January 1996, the Company acquired Vista and was assigned all of Vista's
intellectual property rights, consisting mainly of unregistered copyrights.
The Company has filed two patent applications with the United States Patent
and Trademark Office pertaining to technologies, processes and methodologies
used by the Company's software. Neither of these patents has been granted and
there can be no assurance that a patent will be issued pursuant to either of
these applications or that, if granted, such patent would survive a legal
challenge to its validity or provide meaningful or significant protection to
the Company. Some competitors of the Company have announced the filing with the
United States Patent and Trademark Office of patent applications relating to
fixing and assessing the year 2000 problem. The Company expects that the risk
of infringement claims against the Company might increase because its
competitors might successfully obtain patents for software products and
processes or because as the number of competitors providing software and
software related services addressing year 2000 problem increases, new and
overlapping processes and methodologies used in such services will become more
pervasive, increasing the likelihood of infringement.
There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate. The laws of
some foreign countries may not protect the Company's proprietary rights as
fully or in the same manner as do the laws of the United States. Also, despite
the steps taken by the Company to protect its proprietary rights, it may be
possible for unauthorized third parties to copy aspects of the Company's
products, reverse engineer, develop similar technology independently, or obtain
and use information that the Company regards as proprietary. Furthermore, there
can be no assurance that others will not develop technologies similar or
superior to the Company's technology or design around the proprietary rights
owned by the Company. However, the Company believes that, because of the rapid
pace of technological change in the software industry, patent, trade secret and
copyright protection is less significant to the Company's competitive position
than factors such as the knowledge, ability and experience of its personnel,
new product development, frequent product enhancements, name recognition and
ongoing product maintenance support with regard to developing, establishing and
maintaining a technology leadership position.
EMPLOYEES
As of March 31, 1997, the Company employed 232 full-time employees, including
56 in research and development, 14 in sales and marketing, 139 in professional
services and support and 23 in finance, administration and corporate support.
The success of the Company depends on its continued ability to attract and
retain highly skilled and qualified personnel. Competition for such personnel
is intense in the computer software industry, particularly for software
developers, service consultants, and sales and marketing personnel. There can
be no assurance that the Company will be able to attract and retain qualified
personnel in the future.
45
<PAGE>
The Company's employees are not represented by any labor unions. The Company
considers its relations with its employees to be good.
FACILITIES
The Company is headquartered in Billerica, Massachusetts, where it leases
approximately 45,000 square feet under a lease expiring in January 1999. In
addition, the Company leases office space of approximately 8,000 square feet in
Trumbull, Connecticut, which it currently uses to provide some outsourcing and
software evolution services and approximately 23,000 square feet in Westboro,
Massachusetts, where the Company also provides outsourcing and software
evolution services. These leases expire in January 1999 and December 1999,
respectively.
The Company also maintains a research and development facility in Schaumburg,
Illinois, of approximately 5,000 square feet, the lease for which expires in
September 1998. The Company leases additional facilities and offices in
Phoenix, Denver and Ontario, Canada. The Company's majority-owned subsidiary,
Persist, leases facilities in Barcelona, Spain. The Company believes its
facilities are in good condition. The Company expects that additional space
will be required as it expands its business, including in connection with the
establishment of a subsidiary in India. It believes it will be able to obtain
suitable space as needed.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of April 30, 1997 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dominic K. Chan......... 48 Chairman of the Board of Directors and Chief Executive
Officer
Douglas A. Catalano..... 46 President, Chief Operating Officer and Director
Allen K. Deary.......... 38 Vice President, Finance, Chief Financial Officer, Clerk and
Director
Adarsh K. Arora......... 44 Vice President, Research and Development
Andrea C. Campbell...... 45 Vice President, Outsourcing Operations
Leonard Miller.......... 57 Vice President, Strategic Programs
Robert D. Savoia........ 54 Vice President, Business Development and Marketing
John E. MacPhee......... 36 Director of Finance and Treasurer
Arthur Carr(1).......... 65 Director
John Giordano(2)........ 40 Director
W. Michael 45 Director
Humphreys(1)...........
Axel Leblois(2)......... 48 Director
Henry F. McCance(1)..... 54 Director
Roland Pampel(2)........ 62 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2)Member of Audit Committee.
Dr. Chan co-founded Peritus in 1991 and served as its President and a
director from inception to December 1996. Since December 1996, Dr. Chan has
served as the Company's Chief Executive Officer and Chairman of the Board of
Directors. Prior to co-founding the Company, Dr. Chan held the position of
Executive Vice President of Research and Development for Bull, a manufacturer
of computer products. He holds a patent for a voice and data integration
device. Dr. Chan received a B.S. in Mathematics from Wake Forest University
and an M.S. and a Ph.D. in Mathematics from the University of Wisconsin.
Mr. Catalano joined Peritus in December 1996 as President and Chief
Operating Officer and as a director. From November 1982 to December 1996, Mr.
Catalano held various positions at Computer Sciences Corp., a company which
provides systems integration services, where he most recently served as
President of CSC Consulting, Inc. ("CSC"). Mr. Catalano holds a B.S. in
Finance from Northeastern University.
Mr. Deary co-founded Peritus in 1991, and has served as its Vice President,
Finance and Chief Financial Officer and as a director since inception. Mr.
Deary previously served as Director, Product Life Cycle Process at Bull, where
his primary focus was to develop and implement worldwide cross-functional
product teams. Mr. Deary received his B.S. in Accounting from Northeastern
University.
Dr. Arora joined Peritus in January 1996 as Vice President, Research and
Development. Prior to joining Peritus, he co-founded and served as President
and Chief Executive Officer from January 1986 to January 1996 of Vista
Technologies Incorporated, a manufacturer of high-end computer aided
engineering and computer aided software engineering products. Dr. Arora
received a B.S. in Mathematics at Lucknow University in India, and an M.S. and
a Ph.D. in Computer Science at Northwestern University.
47
<PAGE>
Ms. Campbell co-founded Peritus and served as Vice President, Consulting and
Technology Transfer Services from September 1992 to June 1996. Since June
1996, Ms. Campbell has served as Vice President, Outsourcing Operations. Ms.
Campbell was previously employed as Human Resources Director at Bull Worldwide
Information Services, Inc., a manufacturer of computer products, from March
1990 to August 1992. Ms. Campbell received her B.A. from Kalamazoo College and
her M.A. in Psychology from Western Michigan University.
Mr. Miller joined Peritus in September 1996 as Vice President, Strategic
Programs. Mr. Miller was previously employed from January 1964 to August 1996
at Metropolitan Life Insurance Company, most recently as its Chief Information
Officer of Individual Business. He received a B.A. in Business Management from
Boston University.
Mr. Savoia joined Peritus in January 1997 as Vice President, Business
Development and Marketing. Prior to joining Peritus, he served as Vice
President and Managing Partner of CSC from 1989 to December 1996. During his
eight years at CSC, he was a member of the Operating and Executive Committees,
Vice President of Business Development, and was the partner in charge of the
New York consulting practice. Mr. Savoia received a B.S. in Management Science
from Northeastern University.
Mr. MacPhee joined Peritus in July 1996 as Director of Finance and as
Treasurer. Prior to joining Peritus, Mr. MacPhee served as Corporate
Controller at Bachman Information Systems, Inc., a manufacturer of computer
aided software engineering products, from April 1986 to June 1996. He received
a B.A. in Management and Accounting from the University of Massachusetts,
Amherst.
Mr. Carr has served on the Board of Directors of the Company since November
1995. Mr. Carr has been a private investor since December 1993. From 1991 to
November 1993, Mr. Carr served as Chairman, President and Chief Executive
Officer of Bytex Corporation, a manufacturer of data communications equipment.
He is a director of Bay Networks, Inc., a manufacturer of computer network
systems.
Mr. Giordano has served on the Board of Directors of the Company since March
1997. Mr. Giordano has been employed at Bull since 1978, most recently as Vice
President, Chief Financial Officer and Treasurer since February 1997. He
received a B.S. in Business Administration from Boston College.
Mr. Humphreys has served on the Board of Directors of the Company since
March 1996. Mr. Humphreys has been a partner of Matrix Partners, a private
venture capital firm, since 1982. Prior to his association with Matrix
Partners, he was a general partner of Hellman, Ferri Investment Associates, a
private venture capital partnership. Mr. Humphreys is a director of GeoTel
Communications Corporation, a developer of telecommunications software, as
well as several privately held companies. He received a B.S. from the
University of Oregon and an M.B.A. from the Harvard Graduate School of
Business Administration.
Mr. Leblois has served on the Board of Directors of the Company since
February 1995. Since January 1996, Mr. Leblois has served as the Chairman of
World Times Inc., a publishing company. From May 1991 to December 1995, he
served as President and Chief Executive Officer of Bull. Mr. Leblois is a
director of Wang Laboratories, Inc., a software and services provider, and
Boston Private Bank & Trust Company, a private banking and asset management
firm. He received a BAC in Science and Politics from IEP Paris, an M.B.A. from
the European Institute of Business Administration and a License de Philosophie
from the University of Paris.
Mr. McCance has served on the Board of Directors of the Company since March
1996. Mr. McCance has been a general partner of Greylock, a private venture
capital firm, since 1973. He is Chairman of the Board, President and Secretary
of Greylock Management Corporation, the service organization to the Greylock
venture capital partnerships. Mr. McCance is a director of Shiva Corporation,
a manufacturer of remote access products, and of several privately held
companies. He received a B.A. in Economics from Yale University and an M.B.A.
from the Harvard Graduate School of Business Administration.
48
<PAGE>
Mr. Pampel has served on the Board of Directors of the Company since
November 1995. Mr. Pampel is recently retired. From March 1994 to January
1997, Mr. Pampel held the positions of President, Chief Executive Officer and
director of Microcom, Inc. ("Microcom"), a manufacturer of computer equipment.
Prior to joining Microcom, Mr. Pampel was President and Chief Executive
Officer of Nicolet Instrument Inc., a manufacturer of medical instruments,
from October 1991 to September 1993. He currently serves on the Board of
Directors of Microcom, Infinium Software, Inc., a provider of client-server
business software applications, and Cayenne Software, Inc., a provider of
computer-aided software engineering products. Mr. Pampel holds a B.S. in
Electrical Engineering from the University of Connecticut.
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
Board will consist of three Class I Directors (Messrs. Catalano, Giordano and
McCance), three Class II Directors (Messrs. Deary, Humphreys and Pampel) and
three Class III Directors (Messrs. Carr, Chan and Leblois). At each annual
meeting of stockholders, a class of directors will be elected for a three-year
term to succeed the directors or director of the same class whose terms are
then expiring. The terms of the Class I Directors, Class II Directors and
Class III Directors expire upon the election and qualification of successor
directors at the annual meeting of stockholders held during the calendar years
1998, 1999 and 2000, respectively.
On May 29, 1992, the Company entered into an agreement (the "1992 Bull
Agreement") with Bull, a principal stockholder of the Company, in which the
Company issued Bull 575,000 shares of Common Stock in exchange for the
transfer and assignment by Bull of certain items of equipment and other
personal property. Under the 1992 Bull Agreement, the Company agrees to use
its best efforts to elect one representative of Bull to the Board of Directors
for so long as Bull holds 50% of the shares of Common Stock purchased under
the 1992 Bull Agreement, and that in the event no representative of Bull is
elected to the Board of Directors, Bull has a right of representation at
meetings of the Board for so long as Bull holds 25% of the shares of Common
Stock purchased under the 1992 Bull Agreement. The Company is also obligated
to hold meetings of its Board of Directors at least four times per year. John
Giordano, the Vice President, Chief Financial Officer and Treasurer of Bull,
currently serves as Bull's representative on the Board of Directors. See
"Certain Transactions."
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of
the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee composed of Messrs.
Carr, Humphreys and McCance, which makes recommendations concerning salaries
and incentive compensation for employees of and consultants to the Company and
administers and grants stock options pursuant to the Company's stock option
plans, and an Audit Committee composed of Messrs. Giordano, Leblois and
Pampel, which reviews the results and scope of the audit and other services
provided by the Company's independent public accountant.
DIRECTOR COMPENSATION
All of the directors are reimbursed for expenses incurred in connection with
their attendance at Board and committee meetings. See "--Executive
Compensation--1997 Director Stock Option Plan."
49
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for the
year ended December 31, 1996 for the Company's Chief Executive Officer and its
three other most highly compensated executive officers in 1996 (the Chief
Executive Officer and such other executive officers are hereinafter referred to
as the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
ANNUAL COMPENSATION AWARDS
-------------------- ------------------
NAME AND SECURITIES ALL OTHER
PRINCIPAL POSITION(1) SALARY BONUS UNDERLYING OPTIONS COMPENSATION(2)
--------------------- ---------- --------- ------------------ ---------------
<S> <C> <C> <C> <C>
Dominic K. Chan ........ $ 203,462 $ 40,000 -- $3,131
Chairman of the Board
and
Chief Executive Officer
Allen K. Deary.......... 151,060 40,000 14,200 3,002
Vice President, Finance
and
Chief Financial Officer
Adarsh Arora............ 121,343 40,000 51,192 1,395
Vice President,
Research
and Development
Andrea C. Campbell...... 111,499 40,000 17,085 2,112
Vice President,
Outsourcing Operations
</TABLE>
- --------
(1) Douglas A. Catalano joined the Company as President and Chief Operating
Officer in December 1996. See "--Employment Agreements."
(2) Consists of the Company's matching contributions to the Company's 401(k)
Plans.
50
<PAGE>
The following table sets forth grants of stock options to each of the Named
Executive Officers during the year ended December 31, 1996. No stock
appreciation rights ("SARs") were granted during the year ended December 31,
1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
POTENTIAL
REALIZABLE VALUE
NUMBER OF PERCENT OF TOTAL AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE OR STOCK PRICE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION APPRECIATION FOR
NAME GRANTED FISCAL YEAR PER SHARE(1) DATE OPTION TERM(2)
---- ---------- ---------------- ------------ ---------- -----------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
Dominic K. Chan......... -- -- -- -- -- --
Allen K. Deary.......... 14,200 1.0% $2.80 11/22/2006 $ 25,005 $ 63,367
Adarsh Arora............ 51,192 3.3 2.80 11/22/2006 90,144 228,443
Andrea C. Campbell...... 2,885 0.2 2.80 10/17/2006 5,080 12,874
14,200 1.0 2.80 11/22/2006 25,005 63,367
</TABLE>
- --------
(1) All options were granted pursuant to the Company's Long-Term Incentive
Plan at fair market value as determined by the Board of Directors of the
Company on the date of the grant.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and Common Stock holdings are dependent on the
timing of such exercise and the future performance of the Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by
the individuals.
The following table sets forth certain information regarding stock options
exercised during 1996 and stock options held by each of the Named Executive
Officers on December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED YEAR-END AT FISCAL YEAR-END
ON VALUE ------------------------- ----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- --------- ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Dominic K. Chan......... -- -- 18,750/-- $46,875/$ --
Allen K. Deary.......... -- -- 286,983/24,802 894,531/14,520
Adarsh Arora............ -- -- --/51,192 --/25,597
Andrea C. Campbell...... 5,000 $16,006 218,798/27,854 518,969/182,646
</TABLE>
- --------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise or at fiscal year end,
as the case may be, as determined by the Board of Directors of the
Company.
STOCK PLANS
1997 Director Stock Option Plan
The Company's 1997 Director Stock Option Plan (the "Director Plan") was
adopted by the Board of Directors of the Company in May 1997 and will be
submitted to stockholders for approval prior to the closing of
51
<PAGE>
this offering. Under the terms of the Director Plan, directors of the Company
who are not employees of the Company or any subsidiary of the Company are
eligible to receive nonstatutory options to purchase shares of Common Stock. A
total of 200,000 shares of Common Stock may be issued upon exercise of options
granted under the Director Plan.
Pursuant to the Director Plan, each non-employee director at the time of the
effective date of this offering (each, an "IPO Director") will receive an
option to purchase 15,000 shares of Common Stock at a price per share
equivalent to the initial public offering price. In addition, each IPO
Director will receive an option to purchase 3,000 shares of Common Stock at
the annual meeting of stockholders to be held in 1998, and at each annual
meeting of stockholders thereafter, at an exercise price per share equal to
the closing price of a share of Common Stock on the date of grant. Each
director, other than the IPO Directors, will receive an option to purchase
15,000 shares of Common Stock on the date of his or her initial election to
the Board of Directors and an option to purchase 3,000 shares of Common Stock
on the date of each annual meeting of stockholders after his or her election.
The exercise price per share of such options will be the closing price of a
share of Common Stock on the date of the grant. All options granted under the
Director Plan vest at a rate of one-third of the shares per year over a period
of three years from the date of grant so long as the optionee remains a
director of the Company.
1992 Long-Term Incentive Plan and 1997 Stock Incentive Plan
The Company's Long-Term Incentive Plan (the "Long-Term Incentive Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company on January 24, 1992. Amendments to the Long-Term Incentive Plan
increased the number of authorized shares under the Plan to 4,409,820 shares
of Common Stock as of February 1997. As of April 30, 1997, options to purchase
3,056,238 shares of Common Stock at a weighted average exercise price of $2.26
per share were outstanding under the Long-Term Incentive Plan. No additional
option grants will be granted under the Long-Term Incentive Plan after May 28,
1997.
The Company's 1997 Stock Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors of the Company in May 1997 and will be submitted to
stockholders of the Company for approval prior to the closing of this
offering. The Incentive Plan is intended to replace the Company's Long-Term
Incentive Plan. Up to 1,950,000 shares of Common Stock (subject to adjustment
in the event of stock splits and other similar events) may be issued pursuant
to awards granted under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), nonstatutory stock options, restricted stock awards and
other stock-based awards, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the
grant of stock appreciation rights (collectively, "Awards").
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted Awards under the Incentive Plan.
Under present law, however, incentive stock options may only be granted to
employees. The maximum number of shares with respect to which an Award may be
granted to any participant under the Incentive Plan may not exceed 1,000,000
shares per calendar year.
Optionees may receive the right to purchase a specified number of shares of
Common Stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may
be granted at an exercise price which may be less than, equal to or greater
than the fair market value of the Common Stock on the date of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common
Stock on the date of grant (or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of the Company). The Incentive Plan permits the Board to
determine the manner of payment of the exercise price of options, including
through payment by cash, check or in connection with a "cashless exercise"
through a broker, by surrender to the Company of shares of Common Stock, by
delivery to the Company of a promissory note, or by any combination of the
permitted forms of payment.
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As of April 30, 1997, approximately 235 persons were eligible to receive
Awards under the Incentive Plan, including the Company's eight executive
officers and six non-employee directors. The granting of Awards under the
Incentive Plan is discretionary.
The Incentive Plan is administered by the Board of Directors. The Board has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the Incentive Plan and to interpret the provisions
thereof. Pursuant to the terms of the Incentive Plan, the Board of Directors
may delegate authority under the Incentive Plan to one or more committees of
the Board, and subject to certain limitations, to one or more executive
officers of the Company. The Board has authorized the Compensation Committee
to administer the Incentive Plan, including the granting of options to
executive officers. Subject to any applicable limitations contained in the
Incentive Plan, the Board of Directors, the Compensation Committee, or any
other committee or executive officer to whom the Board delegates authority, as
the case may be, selects the recipients of Awards, may amend, modify or
terminate any outstanding Award and determines (i) the number of shares of
Common Stock covered by options and the dates upon which such options become
exercisable, (ii) the exercise price of options, (iii) the duration of
options, and (iv) the number of shares of Common Stock subject to any
restricted stock or other stock-based Awards and the terms and conditions of
such Awards, including conditions for repurchase, issue price and repurchase
price.
In the event of a merger, liquidation or other Acquisition Event (as defined
in the Incentive Plan), the Board of Directors is authorized to provide for
outstanding options or other stock-based Awards to be assumed or substituted
for, to accelerate the Awards to make them fully exercisable prior to
consummation of the Acquisition Event.
No Award may be made under the Incentive Plan after May 2007, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the Incentive Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or
vested (to the extent such amendment was required to grant such Award) unless
and until such amendment is approved by the Company's stockholders.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in May 1997, will be submitted to the stockholders for approval prior
to the closing of this offering and, subject to stockholder approval, becomes
effective upon the closing of this offering. The Purchase Plan authorizes the
issuance of up to a total of 200,000 shares of Common Stock to participating
employees.
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries, whose
customary employment is more than 20 hours per week are eligible to
participate in the Purchase Plan. Employees who would immediately after the
grant own 5% or more of the total combined voting power or value of the stock
of the Company or any subsidiary are not eligible to participate. As of April
30, 1997, approximately 226 of the Company's employees would have been
eligible to participate in the Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock
as follows: the employee may authorize an amount (a whole percentage from 1%
to 10% of such employee's base pay) to be deducted by the Company from such
pay during the Offering Period. On the last day of the Offering Period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the
Purchase Plan, the option price is an amount equal to 85% of the average
market price (as defined) per share of the Common Stock on either the first
day or the last day of the Offering Period, whichever is lower. In no event
may an employee purchase in any one
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Offering Period a number of shares which exceeds the number of shares
determined by dividing $12,500 by the average market price of a share of
Common Stock on the commencement date of the Offering Period. The Purchase
Plan provides for four consecutive six-month Offering Periods beginning with
the six-month period extending from October 1, 1997 through March 31, 1998.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's
rights under the Purchase Plan terminate upon voluntary withdrawal from the
Purchase Plan at any time, or when such employee ceases employment for any
reason, except that upon termination of employment because of death, the
employee's beneficiary has certain rights to elect to exercise the option to
purchase the shares which the accumulated payroll deductions in the
participant's account would purchase at the date of death.
Because participation in the Purchase Plan is voluntary, the Company cannot
now determine the number of shares of Common Stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Catalano on
December 30, 1996, pursuant to which Mr. Catalano will serve as President and
Chief Operating Officer of the Company. Although the employment agreement has
no set term, it is terminable (i) by the Company or Mr. Catalano without cause
upon 45 days' prior notice, (ii) by either party pursuant to a breach of the
employment agreement by the other party and failure to remedy the breach by
such party after 30 days' prior notice, or (iii) immediately by the Company
with cause (as defined). The agreement provides that Mr. Catalano is entitled
to receive a base salary of $250,000 in 1997 and is eligible to receive a
bonus in an amount to be determined by the Board of Directors, an appropriate
committee or a designee thereof. Mr. Catalano's base salary will be reviewed
annually thereafter. The Company granted Mr. Catalano, and Mr. Catalano
subsequently exercised, an option to purchase 151,515 shares of Common Stock
at an exercise price of $3.30 per share. The Company also granted Mr. Catalano
an incentive stock option to purchase an additional 149,212 shares of Common
Stock (the "ISO") and a nonstatutory stock option to purchase an additional
630,788 shares of Common Stock (the "NSO"), both at an exercise price of $3.30
per share. The ISO is currently exercisable as to 28,000 shares of Common
Stock, and an additional 30,303 shares of Common Stock will vest on December
30, 1997. The NSO will become exercisable as to 157,697 shares of Common Stock
on December 30, 1997. The ISO and NSO will then both vest as to the remaining
shares in 12 equal portions, the first of which will become exercisable on the
last day of the first calendar quarter of 1998, and the remaining of which
will become exercisable on the last day of each succeeding calendar quarter.
Mr. Catalano's options will be fully vested as of the fourth anniversary of
the employment agreement. If his employment is terminated by the Company
without cause (as defined), Mr. Catalano will be entitled to receive severance
compensation for 52 weeks thereafter in an amount equal to the base salary
which would otherwise be payable to Mr. Catalano during that period. In
addition, upon any such termination, the ISO and NSO options will become
exercisable as to that number of shares which would have become exercisable if
Mr. Catalano's employment had terminated one year after the actual date of
termination. Throughout the term of this employment agreement, the Chairman of
the Board of the Company agrees to nominate Mr. Catalano as a candidate for
election to the Board of Directors of the Company. The Agreement also contains
a non-solicitation covenant and a non-competition covenant pursuant to which
Mr. Catalano is prohibited, during the term of his employment, from engaging
in any business activity that would compete directly or indirectly with the
products or services of the kind or type developed by the Company. The non-
competition covenant extends for a one-year period after termination, but is
limited during this period to prohibit Mr. Catalano from engaging in business
activities competitive with the Company's products or services related to the
Company's year 2000 business activities.
In January 1997, the Company and Mr. Savoia entered into an employment
agreement providing for the employment of Mr. Savoia as a Vice President of
the Company. Although the employment agreement has no set
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<PAGE>
term, it is terminable (i) by the Company or Mr. Savoia without cause upon 45
days' prior notice, (ii) by either party pursuant to a breach of the
employment agreement by the other party and failure to remedy the breach by
such party upon 30 days' prior notice, or (iii) immediately by the Company
with cause (as defined). The agreement provides for an annual base salary of
$200,000 as well as annual incentive compensation in an amount determined by
the Board of Directors of the Company, an appropriate committee or a designee
thereof. If his employment is terminated by the Company without cause (as
defined), Mr. Savoia will be entitled to receive severance compensation for 52
weeks in an amount equal to the base salary otherwise payable to Mr. Savoia
during such period. In addition, upon any such termination any options to
purchase shares of Common Stock granted to Mr. Savoia within six months of
January 27, 1997 will become exercisable as to that number of shares which
would have become exercisable if Mr. Savoia's employment had terminated one
year after the actual date of termination. This employment agreement also
contains a non-solicitation covenant and a non-competition covenant pursuant
to which Mr. Savoia, during the term of his employment, is prohibited from
engaging in any business activity that would compete directly or indirectly
with products or services of the kind or type developed by the Company. The
non-competition covenant extends for a one-year period after termination, but
is limited during this period to prohibit Mr. Savoia from engaging in business
activities competitive with the Company's products or services related to the
Company's year 2000 business activities.
On August 15, 1996, the Company entered into a letter agreement with Leonard
Miller providing for the employment of Mr. Miller in accordance with the terms
of the letter agreement. Pursuant to the letter agreement, the term of Mr.
Miller's employment extends from September 1, 1996 through August 31, 2000.
The letter agreement provides for an annual base salary of $200,000 as well as
an annual bonus to be determined in accordance with the Company's policies. In
connection with the commencement of his employment, the Company granted Mr.
Miller an option to purchase 200,000 shares of Common Stock at an exercise
price of $2.80 per share. The option was exercisable with respect to 50,000
shares on the date of commencement of Mr. Miller's employment and is
exercisable as to an additional 50,000 shares on each of August 31, 1997, 1998
and 1999. In the event that Mr. Miller's employment by the Company is
terminated without cause, any of the 200,000 shares subject to this option
that remain unvested as of the date of termination will vest immediately upon
termination. In addition, upon termination without cause Mr. Miller shall
receive severance compensation paid biweekly for a period of one year
thereafter in an amount equal to one year's base salary at the time of the
letter agreement. In the event that the Company is liquidated, all of Mr.
Miller's unvested options will vest immediately prior to liquidation.
In connection with the issuance and sale of shares of the Company's Series A
Convertible Preferred Stock and Common Stock, the Company entered into a Non-
Competition Agreement with Dominic K. Chan which commenced on March 15, 1996
and terminates on the first anniversary of the date on which Mr. Chan's
employment with the Company terminates. The Non-Competition Agreement provides
for severance payments to Mr. Chan in quarterly installments over a one-year
period following termination, in an aggregate amount not to exceed the amount
paid to Mr. Chan by the Company in combined salary and bonus for the 12-month
period immediately preceding the date of termination. The Company's obligation
to pay such severance is conditional upon Mr. Chan's continued compliance with
the terms of the Non-Competition Agreement. The Non-Competition Agreement
prohibits Mr. Chan, during the term thereof, from engaging in any business
activity that is directly or indirectly competitive in the United States with
any of the products or services being developed or otherwise provided by the
Company at the date of his termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Messrs.
Carr, Humphreys and McCance. No executive officer of the Company has served as
a director or member of the compensation committee (or other committee serving
an equivalent function) of any other entity, whose executive officers served
as a director of or member of the Compensation Committee of the Company.
55
<PAGE>
CERTAIN TRANSACTIONS
On May 29, 1992, the Company entered into an agreement (the "1992 Bull
Agreement") with Bull, a principal stockholder of the Company, in which the
Company issued Bull 575,000 shares of Common Stock in exchange for the
transfer and assignment by Bull of certain items of equipment and other
personal property. Under the 1992 Bull Agreement, the Company agrees to use
its best efforts to elect one representative of Bull to the Board of Directors
for so long as Bull holds 50% of the shares of Common Stock purchased under
the 1992 Bull Agreement, and that in the event no representative of Bull is
elected to the Board of Directors, Bull has a right of representation at
meetings of the Board for so long as Bull holds 25% of the shares of Common
Stock purchased under the 1992 Bull Agreement. The Company is also obligated
to hold meetings of its Board of Directors at least four times per year. John
Giordano, the Vice President, Chief Financial Officer and Treasurer of Bull,
currently serves as Bull's representative on the Board of Directors. Other
than the Board seat, right of representation and meeting requirements
described above, the Company's obligations under the 1992 Bull Agreement will
terminate upon consummation of this offering.
Pursuant to a follow-on agreement dated September 1, 1994, the Company
granted Bull, among other things, an option to purchase up to 15% of the
authorized shares of Common Stock of the Company before December 31, 1995 at a
price not to exceed $1.48 per share. On October 31, 1995, Bull exercised this
option and acquired 512,500 shares of Common Stock at a price of $1.48 per
share. The September 1, 1994 agreement was amended and restated in its
entirety by an Agreement of Amendment between the Company and Bull, dated
March 15, 1996, pursuant to which Bull received certain rights of
participation and the right to request that the Company assign its rights and
obligations under a certain Master Services Agreement between the Company and
Bull, to a third party in the event that a direct competitor of Bull or of any
of its affiliates acquired a controlling interest in all or substantially all
of the assets of the Company. The Agreement of Amendment terminates upon the
consummation of this offering. Prior to co-founding the Company, Dominic K.
Chan, the Company's Chairman of the Board and Chief Executive Officer, was
employed by Bull, most recently in the position of Executive Vice President of
Research and Development, and Allen K. Deary, the Company's Vice President,
Finance and Chief Financial Officer, was employed by Bull as its Director of
Product Life Cycle Process. Axel Leblois, a director of the Company, was
President and Chief Operating Officer of Bull from May 1991 to December 1995.
See "Management--Executive Officers and Directors."
On February 3, 1992, the Company entered into a Master Software Services
Agreement with Bull pursuant to which the Company agreed to provide
maintenance and professional services to Bull in accordance with certain
Statements of Work entered into between the parties. The Company derived
revenue of $4,069,741, $9,313,118 and $4,079,375 from the agreement in 1994,
1995 and 1996, respectively. On July 29, 1996, the Company licensed its
AutoEnhancer/2000 software to Bull, by and through Bull's Integris division,
pursuant to a License Agreement, as amended September 27, 1996, pursuant to
which Bull acts as both a value added integrator and distributor. As of April
30, 1997, Bull had incurred license and maintenance fees to the Company
pursuant to the License Agreement in excess of $1,500,000. See Note 8 of Notes
to the Company's Consolidated Financial Statements.
In connection with the establishment by the Company of certain credit
facilities in the aggregate amount of $942,000 with Danvers Savings Bank on
August 16, 1993, April 28, 1994 and August 5, 1994, Dominic K. Chan gave an
unlimited guaranty of all of the Company's obligations to Danvers Savings
Bank. Mr. Chan's guaranty was secured by a pledge of Mr. Chan's life insurance
policy in the amount of $200,000. On September 13, 1996, in connection with
the establishment of credit facilities with Fleet National Bank, the Company
repaid all outstanding principal and interest on the Danvers Savings Bank
Loans, and Danvers Savings Bank released Mr. Chan's guaranty.
On November 18, 1994, the Company entered into a DOS Engineering Development
Agreement with Microcom, Inc. ("Microcom") pursuant to which the Company
provides certain software enhancement and maintenance services to Microcom.
The Company derived revenue of $110,891, $402,354 and $136,755 from
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the Agreement in 1994, 1995 and 1996, respectively. Roland Pampel, a director
of the Company, held the positions of President, Chief Executive Officer and
director of Microcom from March 1994 to January 1997.
On January 3, 1995, the Company entered into a General Computer Consulting
Services Agreement, with Met Life pursuant to which the Company provided
certain software conversion services to Met Life. In connection with the
General Computer Consulting Services Agreement, the Company entered into two
Authorization Letters with Met Life, dated January 3, 1995 and November 27,
1995, respectively. On October 1, 1996, the Company entered into a License
Agreement with Met Life providing for the grant of non-exclusive licenses to
use certain proprietary software products developed by the Company, as
specified in certain subsequent purchase orders entered into between the
Company and Met Life. Leonard Miller, the Company's Vice President, Strategic
Programs, was previously employed at Met Life from January 1964 to August
1996, most recently in the position of Chief Information Officer of Individual
Business. The Company derived revenue of $162,000, $1,716,901 and $1,501,434
from Met Life in 1994, 1995 and 1996, respectively.
Under a Note and Warrant Purchase Agreement dated May 30, 1995 (the "Warrant
Agreement"), the Massachusetts Capital Resource Company ("MCRC") loaned
$1,000,000 to the Company, evidenced by a Secured Subordinated Note (the "MCRC
Note"). The aggregate indebtedness under the MCRC Note was $1,000,000 on April
30, 1997, and the interest rate on the MCRC Note is 10% per annum. The MCRC
Note matures on June 30, 2002, subject to the Company's option to prepay
subject to certain prepayment premiums, in whole or in part, the principal
amount of the MCRC Note and the accrued interest thereunder at any time after
July 1, 1996. Beginning on September 30, 1998, and on the last day of
December, March, June and September in each year thereafter, up to and
including June 30, 2002, the Company is required to redeem, without premium,
$62,500 in principal amount of the MCRC Note, together with interest thereon.
The Company's obligations under the MCRC Note are secured by equipment,
inventory and certain other intangible personal property of the Company
pursuant to a Security Agreement of the same date between the Company and
MCRC. The Security Agreement terminates upon repayment of the MCRC Note in
full. The Company currently intends to use a portion of the proceeds of this
offering to repay in full the MCRC Note. See "Use of Proceeds."
Upon execution of the Warrant Agreement, MCRC received a warrant (the
"Warrant") to purchase 312,500 shares of Common Stock, as adjusted for stock
splits, distributions and other dilutive actions taken by the Company, at an
exercise price of $1.60 per share. The Warrant may be exercised until the
later of (i) June 30, 2002 or (ii) repayment of the MCRC Note. MCRC currently
does not intend to exercise the Warrant prior to the commencement of this
offering. On May 30, 1995, the Company also entered into a Voting Agreement
with Dominic K. Chan and MCRC (the "MCRC Voting Agreement") pursuant to which
MCRC agrees to vote as directed by Mr. Chan with respect to the election of
members of the Board of Directors of the Company. The MCRC Voting Agreement
will terminate upon the consummation of this offering.
The Company issued an unsecured promissory note, dated September 1991, in
the amount of $62,000 payable to Vista Technologies Incorporated ("Vista"), an
entity of which Adarsh K. Arora, the Company's Vice President, Research and
Development, was the principal owner. The note incurred interest at 7% per
annum. In July 1995, the Company repaid all outstanding principal and interest
on the note.
On January 29, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Vista and its stockholders, including its
President and Chief Executive Officer and principal stockholder, Adarsh K.
Arora, pursuant to which Vista merged with and into the Company. Upon
consummation of the merger, each share of capital stock of Vista was converted
into 0.5437 shares of Common Stock of the Company (the "Conversion Ratio").
Mr. Arora, as the duly appointed representative of the Vista stockholders, and
Mr. Chan, the Company's President and Chief Executive Officer at the time of
the merger, determined the Conversion Ratio and other terms of the Merger
Agreement. In determining the terms of the Merger Agreement, the Company
conducted its own analysis of Vista, including a review of the financial
condition of Vista and the strategic value of Vista to the Company. At the
time of the Merger Agreement, Mr. Arora was unaffiliated with the Company. In
connection with the Merger Agreement, the Company employed certain employees
of Vista, including Mr. Arora.
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On March 15, 1996, the Company issued an aggregate of 1,903,525 shares of
Series A Convertible Preferred Stock to nine purchasers at a price of $2.80
per share. Of these shares, Matrix Partners IV, L.P. and Matrix IV
Entrepreneurs Fund, L.P., of which W. Michael Humphreys, a director of the
Company, is a general partner, purchased 795,761 and 41,882 shares,
respectively; Greylock Equity Limited Partnership, of which Henry F. McCance,
a director of the Company, is a general partner, purchased 837,643 shares;
Arthur Carr, a director of the Company, purchased 18,300 shares; MCRC
purchased 196,083 shares; Thomas Deary and Therese Deary, the parents of Allen
K. Deary, purchased 1,830 shares; Michael Deary and Lauri Deary, the brother
and sister-in-law of Allen K. Deary, purchased 3,660 shares; and James Carroll
and Mary Carroll, the father-in-law and mother-in-law of Allen K. Deary,
purchased 1,830 shares. On the same date, the Company issued 71,775 shares of
Common Stock to MCRC for consideration in the amount of $200,970. In
connection with the sale of Series A Convertible Preferred Stock, the Company
entered into a Voting Agreement (the "Voting Agreement") with Matrix Partners
IV, L.P., Matrix IV Entrepreneurs Fund, L.P., Greylock Equity Limited
Partnership and MCRC providing, among other things, that one representative of
Matrix Partners IV, L.P. and one representative of Greylock Equity Limited
Partnership would be elected by the holders of the Series A Convertible
Preferred Stock to the Board of Directors of the Company. The Voting Agreement
will terminate upon the consummation of this offering. In addition, the
Company entered into a Stock Restriction Agreement with Dominic K. Chan and
his wife, Marsha C. Chan (together, the "Chans"), Bull, Matrix Partners IV,
L.P., Matrix IV Entrepreneurs Fund, L.P., Greylock Equity Limited Partnership
and MCRC (together, the "Investors") providing, among other things, that the
Chans would execute a lock-up agreement in the event of an underwritten public
offering of Common Stock and grant a right of first refusal in favor of the
Company and a right of participation in favor of the Investors with respect to
any sale of shares of Common Stock held by the Chans. The Stock Restriction
Agreement will terminate upon consummation of this offering. Also in
connection with this financing, on March 15, 1996, the Company repurchased
159,588 shares of Common Stock at a price of $2.80 per share from certain
stockholders of the Company and sold 71,775 shares of Common Stock to certain
purchasers of the Series A Convertible Preferred Stock for consideration of
$200,970. Also in connection with this financing, Dominic K. Chan sold 625,000
shares of the Company's Common Stock to certain purchasers of the Series A
Convertible Preferred Stock, and the Company granted certain redemption rights
in connection with the shares of Common Stock sold by the Company and Dr.
Chan. In conjunction with any redemption of the Series A Convertible Preferred
Stock by the Company, holders of the Series A Convertible Preferred Stock must
surrender for redemption, at a redemption price equal to $2.80 per share,
0.366 shares of the Common Stock acquired by such holders in this financing.
See Note 10 of Notes to the Company's Consolidated Financial Statements.
On March 15, 1996, the Company entered into a Stock Option Agreement with
the Chans granting the Company the right to purchase, upon the death of
Dominic K. Chan, a certain percentage of the shares of Common Stock held by
the Chans as set forth in the Stock Option Agreement. The Stock Option
Agreement will terminate upon the consummation of this offering.
Pursuant to a Registration Rights Agreement, dated March 15, 1996, between
the Company and certain persons and entities (the "Rightsholders"), including
Matrix IV Partners, L.P., Matrix IV Entrepreneurs Fund, L.P., Greylock Equity
Limited Partnership, Bull, Arthur Carr, Virginia L. Carr, Thomas Deary and
Therese Deary, Michael Deary and Lauri Deary and MCRC, the Rightsholders are
entitled to certain rights with respect to registration under the Securities
Act of 1933, as amended, of certain shares of Common Stock, including shares
of Common Stock that may be acquired pursuant to the conversion of Convertible
Preferred Stock or the exercise of warrants. For a description of such rights,
see "Shares Eligible for Future Sale."
On May 1, 1996, the Company entered into a License and Alliance Agreement
with CSC providing for the grant of a non-exclusive license to CSC to use the
Company's AutoEnhancer/2000 software and related services, and for the
collaboration of the Company and CSC in connection with providing year 2000
services to CSC's clients. The Company derived revenue of $190,000 in 1996
under the License and Alliance Agreement. The initial term of the License and
Alliance Agreement terminated May 1, 1997. On March 15, 1997, the Company
executed an Amendment to the License and Alliance Agreement--Agreement for the
Purchase of a Special Inventory Package (the "Amendment") providing for the
grant of a usage-based license. Prior to joining the Company as President and
Chief Operating Officer and as a director, Mr. Catalano was employed by CSC
from
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November 1982 to December 1996, and most recently served as its President. Mr.
Savoia served as Vice President and Managing Partner of CSC from 1989 to
December 1996 before joining the Company in the position of Vice President,
Business Development and Marketing.
On October 28, 1996, the Company issued an aggregate of 1,818,182 shares of
Series B Convertible Preferred Stock to 25 purchasers at a price of $3.30 per
share, including the sale of 8,000 shares to Axel Leblois, 10,000 shares to
Arthur Carr and 10,000 shares to Virginia L. Carr, the wife of Arthur Carr.
The Company entered into an Amendment No. 1 to the Stock Restriction Agreement
and an Amendment No. 1 to the Registration Rights Agreement to provide that
the purchasers of the Series B Convertible Preferred Stock would become
parties to such agreements. Messrs. Leblois and Carr are directors of the
Company.
For a description of certain employment and other arrangements between the
Company and its executive officers, see "Management--Executive Compensation--
Employment Agreements."
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i)
be approved by a majority of the members of the Company's Board of Directors
and by a majority of the disinterested members of the Company's Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of April 30, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each of the directors of the Company, (ii) each of the Named Executive
Officers, (iii) each person or entity known to the Company to own beneficially
more than 5% of the Company's Common Stock, (iv) all directors and executive
officers as a group and (v) each of the other Selling Stockholders. Except as
indicated below, none of these entities has a relationship with the Company
or, to the knowledge of the Company, any Underwriters of this offering or
their respective affiliates. Unless otherwise indicated, each person or entity
named in the table has sole voting power and investment power (or shares such
power with his or her spouse) with respect to all shares of capital stock
listed as owned by such person or entity.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF BENEFICIAL OWNERSHIP
OFFERING(1) SHARES AFTER OFFERING(1)(2)
-------------------- BEING --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED(2) NUMBER PERCENTAGE
- ------------------------ --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Dominic K. Chan(4)....... 3,013,763 30.1% -- 3,013,763 23.5%
c/o Peritus Software
Services, Inc.
304 Concord Road
Billerica, MA 01821-3485
Greylock Equity Limited
Partnership(5)........... 1,144,258 11.5% -- 1,144,258 9.0%
One Federal Street
Boston, MA 02110
Henry F. McCance(5)...... 1,144,258 11.5% -- 1,144,258 9.0%
c/o Greylock Equity
Limited Partnership
One Federal Street
Boston, MA 02110
Matrix Partners IV,
L.P(6).................. 1,144,258 11.5% -- 1,144,258 9.0%
Bay Colony Corp. Center
1000 Winter Street
Suite 4500
Waltham, MA 02154
W. Michael Humphreys(7).. 1,144,258 11.5% -- 1,144,258 9.0%
c/o Matrix Partners IV,
L.P.
Bay Colony Corp. Center
1000 Winter Street
Suite 4500
Waltham, MA 02154
Bull HN Information
Systems Inc.(8)......... 1,087,500 10.9% 100,000 987,500 7.7%
300 Concord Road
Billerica, MA 01821
John Giordano(8)......... 1,087,500 10.9% 100,000 987,500 7.7%
c/o Bull HN Information
Systems Inc.
300 Concord Road
Billerica, MA 01821
Y2K Partners, Ltd.(9).... 606,061 6.1% -- 606,061 4.7%
c/o EFO Holdings, Inc.
1111 West Mockingbird
Lane
Suite 1400
Dallas, TX 75247
Douglas A. Catalano...... 179,515 1.8% -- 179,515 1.4%
Arthur Carr(10).......... 30,625 * -- 30,625 *
Axel Leblois(11)......... 11,125 * -- 11,125 *
Roland Pampel(12)........ 80,212 * -- 80,212 *
Allen K. Deary(13)....... 386,247 3.8% -- 386,247 3.0%
Adarsh K. Arora.......... 148,808 1.5% -- 148,808 1.2%
Andrea C. Campbell(14)... 250,986 2.5% -- 250,986 1.9%
All executive officers
and directors, as
a group (15
persons)(15)............ 6,428,352 61.0% 100,000 6,328,352 47.4%
</TABLE>
- --------
60
<PAGE>
* Less than 1% of outstanding Common Stock.
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right
to acquire within 60 days of April 30, 1997 through the exercise of any
stock option, warrant or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares.
(2) In the event that the over-allotment option is exercised in full, Dominic
K. Chan, Bull, Allen K. Deary and Andrea Campbell will offer to sell
200,000, 185,000, 30,000 and 20,000 shares of Common Stock, respectively,
to the Underwriters. As a result of such exercise, Dominic K. Chan, Bull,
Allen K. Deary and Andrea Campbell will beneficially own 2,813,763,
802,500, 356,247 and 230,986 shares of Common Stock, or 22.0%, 6.3%, 2.7%
and 1.8% of the outstanding shares, respectively, after this offering.
(3) Assumes no exercise of the underwriters' over-allotment option.
(4) Includes 18,750 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of April 30, 1997; 2,795,013
shares of Common Stock held jointly with his wife, with Marsha C. Chan;
and 200,000 shares of Common Stock held in the name of the Chan Family
Irrevocable Trust of which Julian Chan, Marsha C. Chan and Theodore
Tedeschi are trustees and of which Dominic K. Chan's present and future
offspring are beneficiaries and as to which shares Dominic K. Chan
disclaims beneficial ownership. Julian Chan is Dominic Chan's son.
(5) Mr. McCance, a general partner of Greylock Equity GP Limited Partnership
("Greylock"), the general partner of Greylock Equity Limited Partnership,
is a director of the Company. Mr. McCance, together with the other
general partners of Greylock, shares voting and investment power with
respect to the shares owned by Greylock. Mr. McCance does not own any
shares of the Company in his individual capacity and disclaims beneficial
ownership of the shares held by Greylock Equity Limited Partnership,
except to the extent of his pecuniary interest therein. See "Certain
Transactions."
(6) Includes 57,213 shares held by Matrix IV Entrepreneurs Fund, L.P.
(7) Mr. Humphreys, a general partner of Matrix IV Management Co. L.P., the
general partner of Matrix Partners IV, L.P. ("Matrix") and the general
partner of Matrix IV Entrepreneurs Fund, L.P., is a director of the
Company. Mr. Humphreys, together with the other managing members of
Matrix, shares voting and investment power with respect to the shares
owned by Matrix. Mr. Humphreys does not own any shares of the Company in
his individual capacity and disclaims beneficial ownership of shares
owned by Matrix, except to the extent of his pecuniary interest therein.
See "Certain Transactions."
(8) Mr. Giordano is a director of the Company and Vice President, Chief
Financial Officer and Treasurer of Bull. Mr. Giordano, together with
certain other officers of Bull, shares investment and voting power with
respect to the shares owned by Bull. Mr. Giordano does not own any shares
of the Company in his individual capacity and disclaims beneficial
ownership of shares owned by Bull, except to the extent of his pecuniary
interest therein. See "Certain Transactions."
(9) GPW Partners Limited is the general partner of Y2K Partners, Ltd. John P.
Watters, the President and Chairman of Cross Matrix Corporation, the
general partner of GPW Partners Limited, has sole investment and voting
power over the shares held by Y2K Partners, Ltd., as to which shares Mr.
Watters disclaims beneficial ownership.
(10) Includes 3,125 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of April 30, 1997. Also
includes 10,000 shares of Common Stock held by Virginia L. Carr, Mr.
Carr's wife, and 5,000 shares of Common Stock held by a trust, of which
Virginia L. Carr is sole trustee, as to which shares Mr. Carr disclaims
beneficial ownership.
(11) Includes 3,125 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of April 30, 1997.
(12) Includes 28,125 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of April 30, 1997.
(13) Includes 186,983 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of April 30, 1997. Also
includes 10,713 shares held by Mr. Deary's wife and two children, as to
which Mr. Deary disclaims beneficial ownership.
(14) Includes 218,798 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of April 30, 1997. Also
includes 1,563 shares of Common Stock held by Ms. Campbell's husband and
13,125 shares of Common Stock subject to outstanding stock options which
are exercisable by her husband within 60 days of April 30, 1997, as to
which Ms. Campbell disclaims beneficial ownership.
(15) Includes an aggregate of 565,781 shares of Common Stock subject to
outstanding options which are exercisable within 60 days of April 30,
1997.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After giving effect to the amendment and restatement of the Company's
Articles of Organization (the "Restated Articles") to be effected upon the
closing of this offering, the authorized capital stock of the Company will
consist of 50,000,000 shares of Common Stock, $.01 par value per share, and
5,000,000 shares of Preferred Stock, $.01 par value per share. As of April 30,
1997 (assuming the conversion of all outstanding shares of Convertible
Preferred Stock and Class B Common Stock into Common Stock), there were
outstanding (i) 9,979,023 shares of Common Stock held by 135 stockholders of
record, (ii) stock options for the purchase of 3,056,238 shares of Common
Stock and (iii) warrants for the purchase of 312,500 shares of Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding Preferred
Stock. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. Certain holders of Common Stock
have the right to require the Company to effect the registration of their
shares of Common Stock in certain circumstances. Application has been made to
have the shares of Common Stock approved for quotation on the Nasdaq National
Market under the symbol "PTUS." See "Shares Eligible for Future Sale."
PREFERRED STOCK
Under the terms of the Restated Articles, the Board of Directors is
authorized, subject to any limitations prescribed by law, without stockholder
approval, to issue such shares of Preferred Stock in one or more series. Each
such series of Preferred Stock shall have such rights, preferences, privileges
and restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by
the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The rights of the holders of
Common Stock will be subject to the rights of holders of any shares of
Preferred Stock issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
a majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
WARRANTS
As of April 30, 1997, the Company had an outstanding warrant to purchase an
aggregate of 312,500 shares of Common Stock at an exercise price of $1.60 per
share. This warrant expires on the later of (i) June 30, 2002 or (ii) upon the
payment in full of the principal amount of the MCRC Note and the interest due
thereon. See "Certain Transactions."
62
<PAGE>
MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED ARTICLES
OF ORGANIZATION AND AMENDED AND RESTATED BY-LAWS
The Restated Articles provide that the Company will be subject to Chapter
110F of the Massachusetts General Laws, an anti-takeover law, following this
offering. In general, this statute prohibits a publicly held Massachusetts
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless (i) the interested
stockholder obtains the approval of the Board of Directors prior to becoming
an interested stockholder, (ii) the interested stockholder acquires 90% of the
outstanding voting stock of the corporation (excluding shares held by certain
affiliates of the corporation) at the time it becomes an interested
stockholder, or (iii) the business combination is approved by both the Board
of Directors and the holders of two-thirds of the outstanding voting stock of
the corporation (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more of the outstanding voting stock of the corporation. A "business
combination" includes a merger, a stock or asset sale, and certain other
transactions resulting in a financial benefit to the interested stockholder.
Massachusetts General Laws Chapter 156B, Section 50A generally requires that
publicly held Massachusetts corporations have a classified board of directors
consisting of three classes as nearly equal in size as possible, unless the
corporation elects to opt out of the statute's coverage. The Company's
Restated By-Laws contain provisions which give effect to Section 50A. See
"Management--Executive Officers and Directors."
The Restated By-Laws include a provision excluding the Company from the
applicability of Massachusetts General Laws Chapter 110D, entitled "Regulation
of Control Share Acquisitions." In general, this statute provides that any
stockholder of a corporation subject to this statute who acquires 20% or more
of the outstanding voting stock of a corporation may not vote such stock
unless the stockholders of the corporation so authorize. The Board of
Directors may amend the Company's Restated By-Laws at any time to subject the
Company to this statute prospectively.
The Restated By-Laws require the Company to call a special stockholders
meeting at the request of stockholders holding at least 80% of the voting
power of the Company. Any stockholder seeking to solicit requests to call a
special meeting of stockholders (the "Call") must notify the Company by notice
in writing setting forth the reasons for the Call and the purposes of such
special meeting. No solicitation of stockholder requests for a Call may be
made before the record date determining those stockholders entitled to request
a Call, or during the period of 90 days following the most recent meeting of
stockholders of the Company. All requests for a Call shall be delivered to the
Company no later than the 30th day (the "Delivery Date") after the record date
for the Call request. If, in response to a Call solicitation, the holders of
record of at least 80% of the voting power submit requests for a Call, the
Board of Directors must call a special meeting no earlier than 60 days and no
later than 90 days after the Delivery Date. The Board of Directors is not
obligated to fix a meeting date or to hold any meeting of stockholders within
60 days of the next scheduled meeting of the stockholders of the Company.
The Restated Articles provide that the directors and officers of the Company
shall be indemnified by the Company to the fullest extent authorized by
Massachusetts law, as it now exists or may in the future be amended, against
all expenses and liabilities reasonably incurred in connection with service
for or on behalf of the Company. In addition, the Restated Articles provide
that the directors of the Company will not be personally liable for monetary
damages to the Company for breaches of their fiduciary duty as directors,
unless they violated their duty of loyalty to the Company or its stockholders,
acted in bad faith, knowingly or intentionally violated the law, authorized
legal dividends or redemptions or derived an improper personal benefit from
their action as directors.
The Restated Articles provide that any amendment to the Restated Articles,
the sale, lease or exchange of all or substantially all of the Company's
property and assets, or the merger or consolidation of the Company into or
with any other corporation may be authorized by the approval of the holders of
a majority of the shares of
63
<PAGE>
each class of stock entitled to vote thereon, rather than by two-thirds as
otherwise provided by statute, provided that the transactions have been
authorized by a majority of the members of the Board of Directors and the
requirements of any other applicable provisions of the Restated Articles have
been met.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe
Limited Partnership.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the securities
of the Company. Upon completion of this offering, based upon the number of
shares outstanding at April 30, 1997, there will be 12,779,023 shares of
Common Stock of the Company outstanding (assuming no exercise of the
Underwriters' over-allotment option or options outstanding under the Company's
stock option plans). Of these shares, the 2,900,000 shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), except
that any shares purchased by "affiliates" of the Company, as that term is
defined in Rule 144 ("Rule 144") under the Securities Act ("Affiliates"), may
generally only be sold in compliance with the limitations of Rule 144
described below.
SALES OF RESTRICTED SHARES
The remaining 9,879,023 shares of Common Stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, approximately
174,252 shares of Common Stock, which are not subject to the 180-day lock-up
agreements (the "Lock-Up Agreements") with the Representatives of the
Underwriters, will be eligible for immediate sale in the public market
pursuant to Rule 144(k) under the Securities Act. Approximately 138,606
additional shares of Common Stock, which are not subject to Lock-Up
Agreements, will be eligible for sale in the public market in accordance with
Rule 144 or Rule 701 under the Securities Act beginning 90 days after the date
of this Prospectus. Upon expiration of the Lock-Up Agreements 180 days after
the date of this Prospectus (and assuming no exercise of any outstanding
options), approximately 9,566,165 additional shares of Common Stock will be
available for sale in the public market, subject to the provisions of Rule 144
under the Securities Act.
The officers and directors of the Company, and certain securityholders,
which executive officers, directors and securityholders in the aggregate hold
approximately 10,677,071 shares of Common Stock (including 1,110,906 shares of
Common Stock that may be acquired pursuant to the exercise of vested options
held by them and exercisable within 60 days of June 30, 1997) on the date of
this Prospectus, have agreed that, for a period of 180 days after the date of
this Prospectus, they will not sell, offer, contract or grant any option to
sell, pledge, transfer, establish an open put equivalent position or otherwise
dispose of any shares of Common Stock, any options to purchase shares of
Common Stock or any shares convertible into or exchangeable for shares of
Common Stock, owned directly by such persons or with respect to which they
have the power of disposition, without the prior written consent of Montgomery
Securities.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least
one year from the later of the date such securities were acquired from the
Company or (if applicable) the date they were acquired from an Affiliate is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock (127,791 shares immediately after this offering) or the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
the date on which notice of such sale was filed under Rule 144, provided
certain requirements concerning availability of public information, manner of
sale and notice of sale are satisfied. In addition, under Rule 144(k), if a
period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the
date they were acquired from an Affiliate of the Company, a stockholder who is
not an Affiliate of the Company at the time of sale and has not been an
Affiliate of the Company for at least three months prior to the sale is
entitled to sell the shares immediately without compliance with the foregoing
requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
acquired pursuant to the exercise of certain options granted under the
Company's stock plans) are also restricted securities and, beginning 90 days
after the effective date of the Registration Statement of which this
Prospectus is a part, may be sold by stockholders other than Affiliates of the
Company subject only to the manner of sale provisions of Rule 144 and by
Affiliates under Rule 144 without compliance with its one-year holding period
requirement.
65
<PAGE>
OPTIONS
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the Long-
Term Incentive Plan, Incentive Plan, Director Plan and Purchase Plan. The
Company intends to file registration statements on Form S-8 with respect to
the shares of Common Stock issuable under the Director Plan and the Purchase
Plan promptly following the consummation of this offering, but has agreed with
the Underwriters that it will not file any registration statements on Form S-8
relating to the Long-Term Incentive Plan and the Incentive Plan until at least
90 days after the effective date of the Registration Statement of which this
Prospectus is a part. Shares issued upon the exercise of stock options after
the effective date of the Form S-8 registration statements will be eligible
for resale in the public market without restriction, subject to Rule 144
limitations applicable to Affiliates and the Lock-up Agreements noted above,
if applicable.
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement, dated March 15, 1996, between
the Company and certain persons and entities (the "Rightsholders"), including
Matrix IV Partners, L.P., Matrix IV Entrepreneurs Fund, L.P., Greylock Equity
Limited Partnership, Bull and MCRC, are entitled to certain rights with
respect to the registration under the Securities Act of a total of
approximately 5,719,112 shares of Common Stock (the "Registerable Stock"). The
Registration Rights Agreement generally provides that, in the event the
Company proposes to register any of its securities under the Securities Act,
the Rightsholders shall be entitled to include Registerable Stock in such
registration, subject to the right of the managing underwriter of any
underwritten offering to limit for marketing reasons the number of shares of
Registerable Stock included in such "piggyback" registration.
The Rightsholders have the right, exercisable upon the request of holders of
at least 40% of the aggregate outstanding shares of Registerable Stock, to
require the Company to prepare and file registration statements under the
Securities Act with respect to Registerable Stock at any time after the
earliest of (i) six months after the effective date of any registration
statement covering a public offering of securities of the Company, other than
on Form S-8, (ii) six months after the Company becomes a reporting company
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or (iii) June 30, 1997; provided, however, that (a) such
demand requests the registration of Registerable Stock representing at least
20% of the aggregate outstanding shares of Registerable Stock if the
Rightsholder requests the registration of less than all the shares of
Registerable Stocks (b) the Company need only effect one such demand
registration and (c) the Company is not required to file a demand registration
statement if the previous registration with respect to which the Rightsholders
were entitled to registration pursuant to their piggyback or Form S-3
registration rights became effective less than 180 days prior to such request.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of the Common Stock
in the public market could adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.
66
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Wessels, Arnold & Henderson, L.L.C. and H.C. Wainwright & Co.,
Inc. (the "Representatives"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the
Company and the Selling Stockholders the number of shares of Common Stock
indicated below opposite their respective names at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain terms and conditions precedent and that
the Underwriters are committed to purchase all of such shares, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Montgomery Securities..............................................
Wessels, Arnold & Henderson, L.L.C.................................
H.C. Wainwright & Co., Inc.........................................
---------
Total............................................................ 2,900,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters initially propose to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than $
per share, and the Underwriters may allow, and any such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject orders in whole or in part.
Certain Selling Stockholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 435,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to
be purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
Each director and officer of the Company and certain other of its
stockholders prior to this offering, as well as certain other holders of
options, warrants or other rights to purchase Common Stock, who immediately
following this offering (assuming no exercise of the over-allotment option)
collectively will beneficially own 10,677,071 shares of Common Stock, have
agreed not to directly or indirectly sell, offer, contract or grant any option
to sell, pledge, transfer, establish an open put equivalent position or
otherwise dispose of any rights with respect to any shares of Common Stock,
any options or warrants to purchase Common Stock, or any securities
convertible or exchangeable for Common Stock, owned directly by such holders
or with respect to which they have the power of disposition for a period of
180 days after the date of this Prospectus without the prior written consent
of Montgomery Securities. Montgomery Securities may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to these lock-up agreements. In addition, the Company has agreed not
to sell, offer to sell, contract to sell or otherwise sell or dispose of any
shares of Common Stock or any rights to acquire Common Stock, other than
pursuant to its stock plans or upon the exercise of outstanding options and
warrants, for a period of 180 days after the date of this Prospectus without
the prior consent of Montgomery Securities. See "Shares Eligible for Future
Sale."
67
<PAGE>
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities, under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilization, syndicate covering
transactions and imposition of penalty bids. In an over-allotment, the
Underwriters would allot more shares of Common Stock to their customers in the
aggregate than are available for purchase by the Underwriters under the
Underwriting Agreement. Stabilizing means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of a security. In a syndicate covering transaction, the Underwriters
would place a bid or effect a purchase to reduce a short position created in
connection with this offering. Pursuant to a penalty bid, Montgomery
Securities, on behalf of the Underwriters, would be able to reclaim a selling
concession from an Underwriter if shares of Common Stock originally sold by
such Underwriter are purchased in syndicate covering transactions. These
transactions may result in the price of the Common Stock being higher than the
price that might otherwise prevail in the open market. These transactions may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise, and, if commenced, may be discontinued at any time.
The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined through negotiations among the Company and the Representatives.
Among the factors to be considered in such negotiations will be the history
of, and prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, the present state of the Company's
development, the prospects for future earnings of the Company, the prevailing
market conditions at the time of this offering, market valuations of publicly
traded companies that the Company and the Representatives believe to be
comparable to the Company, and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Hale and Dorr LLP, Boston,
Massachusetts. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The Company's financial statements as of December 31, 1995 and 1996, and for
each of the three years in the period ended December 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
68
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits, schedules and supplements
thereto) on Form S-1 under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, to which Registration
Statement reference is hereby made. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the
Company is required to file electronic versions to these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements. The Company also intends
to make available to its stockholders, within 45 days after the end of each
fiscal quarter, reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
69
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheet as of December 31, 1995 and 1996, March 31,
1997 (unaudited) and pro forma March 31, 1997 (unaudited)................ F-3
Consolidated Statement of Operations for the three years ended December
31, 1996, and the three months ended March 31, 1996 and 1997
(unaudited).............................................................. F-4
Consolidated Statement of Changes in Stockholders' Equity for the three
years ended December 31, 1996 and the three months ended March 31, 1997
(unaudited).............................................................. F-5
Consolidated Statement of Cash Flows for the three years ended December
31, 1996 and the three months ended March 31, 1996 and 1997 (unaudited).. F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Peritus Software Services, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Peritus Software Services, Inc. and its subsidiary at December 31, 1995 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
May 14, 1997
F-2
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
------ ------- --------- ---------
(NOTE 10)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 264 $ 7,388 $ 5,022
Accounts receivable, net of allowance for
doubtful accounts of $30, $30 and $30
and including amounts receivable from
related parties of $1,131, $260 and
$341, respectively...................... 2,325 4,163 4,661
Costs and estimated earnings in excess of
billings on uncompleted contracts,
including amounts on uncompleted
contracts with related parties of
$1,369, $562 and $431, respectively..... 2,696 2,195 1,962
Unbilled license revenue from related
parties................................. -- 1,400 1,200
Prepaid expenses and other current
assets.................................. 266 119 238
------ ------- -------
Total current assets..................... 5,551 15,265 13,083
Property and equipment, net............... 1,340 1,970 2,042
Other assets.............................. 288 490 587
------ ------- -------
$7,179 $17,725 $15,712
====== ======= =======
LIABILITIES, REDEEMABLE STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit........................... $ 400 $ -- $ --
Demand notes payable..................... 150 -- --
Current portion of capital lease
obligations............................. 112 74 74
Current portion of long-term debt........ 115 225 225
Accounts payable......................... 708 497 856
Billings in excess of costs and estimated
earnings on uncompleted contracts....... 710 902 1,014
Deferred revenue......................... -- 3,262 906
Other accrued expenses and current
liabilities............................. 1,138 2,087 1,602
------ ------- -------
Total current liabilities................ 3,333 7,047 4,677
Capital lease obligations................. 231 201 170
Long-term debt............................ 1,561 1,337 1,306
Deferred income taxes..................... 186 -- --
------ ------- -------
Total liabilities........................ 5,311 8,585 6,153
------ ------- -------
Minority interest in consolidated
subsidiary............................... 66 155 173
------ ------- -------
Commitments (Note 17)..................... -- -- --
------ ------- -------
Redeemable convertible preferred stock, no
par value:
Series A--1,903,525 shares authorized,
issued and outstanding at issuance cost
plus accretion and accrued dividends
(liquidation preference $7,281,000) at
December 31, 1996 and March 31, 1997; 0
shares authorized, issued and
outstanding pro forma March 31, 1997.... -- 5,912 6,094 $ --
Series B--1,818,182 shares authorized,
issued and outstanding at issuance cost
plus accretion and accrued dividends
(liquidation preference $6,000,000) at
December 31, 1996 and March 31, 1997;
0 shares authorized, issued and
outstanding pro forma March 31, 1997.... -- 6,107 6,158 --
Redeemable common stock right............. -- 268 294 --
------ ------- ------- -------
-- 12,287 12,546 --
------ ------- ------- -------
Stockholders' equity (deficit):
Class A common stock, no par value;
13,295,000 shares authorized; 5,525,075,
6,033,614, 6,156,114 and 0 shares issued
and 5,523,288, 6,033,614, 6,156,114 and
0 shares outstanding, respectively...... 1,216 2,207 2,209 --
Class B non-voting common stock, no par
value; 275,000 shares authorized;
99,912, 101,196, 101,196 and 0 shares
issued and 99,287, 101,196, 101,196 and
0 shares outstanding, respectively...... 160 164 164 --
Common stock, $.01 par value; 50,000,000
shares authorized; 9,979,023 shares
issued and outstanding, pro forma March
31, 1997................................ -- -- -- 100
Additional paid-in capital............... -- -- -- 14,819
Accumulated earnings (deficit)........... 430 (5,593) (5,446) (5,446)
Note receivable from stockholder......... -- (58) (58) (58)
Treasury stock, at cost, 1,787 shares and
625 shares of Class A and Class B common
stock, respectively..................... (4) -- -- --
Cumulative translation adjustment........ -- (22) (29) (29)
------ ------- ------- -------
Total stockholders' equity (deficit)..... 1,802 (3,302) (3,160) $ 9,386
------ ------- ------- -------
$7,179 $17,725 $15,712
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------------
1994 1995 1996 1996 1997
------ ------- ----------- ------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Outsourcing services,
including $3,951,
$10,114, $4,943,
$1,179 and $975 from
related parties,
respectively.......... $7,130 $16,400 $ 10,190 $ 2,244 $ 2,519
License, including
$1,500 from related
parties for 1996...... -- -- 6,526 -- 4,144
Other services,
including $366, $10,
$0, $0 and $0 from
related parties,
respectively.......... 742 2,105 2,519 404 1,196
------ ------- ----------- ------- ----------
Total revenue.......... 7,872 18,505 19,235 2,648 7,859
------ ------- ----------- ------- ----------
Cost of revenue:
Cost of outsourcing
services including
$1,428, $3,318,
$1,984, $482 and $373
from related parties,
respectively.......... 4,700 9,602 8,488 2,234 2,045
License, including $6
from related parties
for 1996.............. -- -- 162 -- 127
Cost of other services
including $153, $3,
$0, $0 and $0 from
related parties,
respectively.......... 319 2,421 2,931 506 1,289
------ ------- ----------- ------- ----------
Total cost of revenue.. 5,019 12,023 11,581 2,740 3,461
------ ------- ----------- ------- ----------
Gross profit (loss)..... 2,853 6,482 7,654 (92) 4,398
------ ------- ----------- ------- ----------
Operating expenses:
Sales and marketing.... 366 2,129 3,116 654 1,383
Research and
development........... 560 1,703 6,033 1,360 1,634
General and
administrative........ 1,283 2,357 3,249 748 925
------ ------- ----------- ------- ----------
Total operating
expenses.............. 2,209 6,189 12,398 2,762 3,942
------ ------- ----------- ------- ----------
Income (loss) from
operations............ 644 293 (4,744) (2,854) 456
Interest income......... 3 18 48 22 73
Interest expense........ (66) (221) (344) (60) (46)
------ ------- ----------- ------- ----------
Income (loss) before
income taxes, minority
interest and equity in
loss of less than
majority-owned
company............... 581 90 (5,040) (2,892) 483
Provision (benefit) for
estimated income
taxes.................. 179 (8) (143) (142) 48
------ ------- ----------- ------- ----------
Income (loss) before
minority interest and
equity in loss of less
than majority-owned
company............... 402 98 (4,897) (2,750) 435
Minority interest in
consolidated
subsidiary............. -- (43) (24) 38 (29)
Equity in loss of less
than majority-owned
company................ (97) -- -- -- --
------ ------- ----------- ------- ----------
Net income (loss)...... $ 305 $ 55 (4,921) $(2,712) 406
====== ======= =======
Accrual of dividends on
Series A and B
preferred stock........ (689) (233)
Accretion to redemption
value of redeemable
stock.................. (413) (26)
----------- ----------
Net income (loss)
available for common
stockholders........... $ (6,023) $ 147
=========== ==========
Unaudited pro forma net
income (loss) per share
assuming conversion of
convertible preferred
stock (Note 2)......... $ (0.46) $ 0.03
=========== ==========
Shares used in computing
unaudited pro forma net
income (loss) per
share.................. 10,652,595 12,669,990
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK TOTAL
----------------- ---------------- RECEIVABLE CUMULATIVE STOCKHOLDERS'
NUMBER NUMBER ACCUMULATED TREASURY FROM TRANSLATION EQUITY
OF SHARES AMOUNT OF SHARES AMOUNT DEFICIT STOCK STOCKHOLDER ADJUSTMENT (DEFICIT)
--------- ------ --------- ------ ----------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 4,865,950 $ 428 -- $-- $ 70 $ -- $-- $-- $ 498
Issuance of common
stock.................. 145,375 64 64
Net income.............. 305 305
--------- ------ ------- ---- ------- ----- ---- ---- -------
Balance, December 31,
1994................... 5,011,325 492 -- -- 375 -- -- -- 867
Purchase of 95,537
shares of Class A
common stock for
treasury............... (153) (153)
Issuance of common
stock.................. 4,375 7 7
Sale of common stock
pursuant to employee
stock purchase plan.... 95,537 153 153
Purchase of 625 shares
of Class B common stock
for treasury........... (1) (1)
Effect of accelerating
vesting of certain
common stock options... 36 36
Issuance of common stock
warrants............... 76 76
Sale of common stock
pursuant to
stock agreement........ 512,500 758 758
Sale of common stock
pursuant to exercise of
stock options.......... 1,250 (146) 150 4
Net income.............. 55 55
--------- ------ ------- ---- ------- ----- ---- ---- -------
Balance, December 31,
1995................... 5,525,075 1,216 99,912 160 430 (4) -- -- 1,802
Purchase of 189,588
shares of Class A
common stock for
treasury............... (531) (531)
Issuance of common
stock.................. 431,515 1,027 201 1,228
Exercise of employee
stock options,
including related
receivable
from stockholder....... 36,250 58 (58) --
Effect of accelerating
vesting of certain
common stock options... 118 118
Sale of common stock
pursuant to exercise of
stock options.......... 158,587 118 1,909 5 3 126
Retirement of treasury
stock.................. (117,813) (330) (625) (1) 331 --
Accrual of cumulative
dividends on redeemable
convertible preferred
stock and accretion to
redemption value on
redeemable stock....... (1,102) (1,102)
Cumulative translation
adjustment............. (22) (22)
Net loss................ (4,921) (4,921)
--------- ------ ------- ---- ------- ----- ---- ---- -------
Balance, December 31,
1996................... 6,033,614 2,207 101,196 164 (5,593) -- (58) (22) (3,302)
Sale of common stock
pursuant to exercise of
stock options
(unaudited)............ 122,500 2 2
Accrual of cumulative
dividends on redeemable
convertible preferred
stock and accretion to
redemption value on
redeemable stock
(unaudited)............ (259) (259)
Cumulative translation
adjustment
(unaudited)............ (7) (7)
Net income (unaudited).. 406 406
--------- ------ ------- ---- ------- ----- ---- ---- -------
Balance at March 31,
1997 (unaudited)....... 6,156,114 $2,209 101,196 $164 $(5,446) $ -- $(58) $(29) $(3,160)
========= ====== ======= ==== ======= ===== ==== ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1994 1995 1996 1996 1997
- ------------------------------------ ------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ 305 $ 55 $(4,921) $(2,712) $ 406
Adjustments to reconcile net income
(loss) to net cash provided by (used
for) operating activities:
Non-cash sale of services and other
non-cash expenses.................... (7) 12 -- -- --
Depreciation and amortization......... 228 443 854 137 262
Minority interest in consolidated
subsidiary........................... -- 43 24 (38) 18
Equity in loss of less than
majority-owned company............... 97 -- -- -- --
Non-cash employee compensation........ 37 83 118 118 --
Changes in assets and liabilities, net
of effects from acquisitions:
Accounts receivable................. (435) (1,354) (1,690) (536) (498)
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... (1,061) (1,635) 501 871 233
Unbilled license revenue from
related parties.................... -- -- (1,400) -- 200
Prepaid expenses and other current
assets............................. (22) (218) 184 (45) (119)
Other assets........................ -- -- (7) (29) 17
Accounts payable.................... 202 226 (222) (90) 359
Billings in excess of costs and
earnings on uncompleted contracts.. 201 509 192 (25) 112
Deferred revenue.................... -- -- 3,262 116 (2,356)
Other accrued expenses and current
liabilities........................ 317 732 949 (36) (485)
Deferred income taxes............... 179 7 (186) (57) --
------- ------- ------- ------- ------
Net cash provided by (used for)
operating activities............. 41 (1,097) (2,342) (2,326) (1,851)
------- ------- ------- ------- ------
Cash flows from investing activities:
Acquisition of business for cash, net of
cash acquired.......................... -- (43) -- -- --
Cash of business acquired for common
stock, net of costs paid in cash....... -- -- 174 174 --
Investment in less than majority-owned
company................................ (32) -- -- -- (161)
Partial sale of investment in consoli-
dated subsidiary....................... -- -- 8 -- --
Purchases of property and equipment..... (93) (824) (1,240) (250) (287)
Acquisition of patents.................. -- (105) (1) -- --
------- ------- ------- ------- ------
Net cash used in investing
activities....................... (125) (972) (1,059) (76) (448)
------- ------- ------- ------- ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER ENDED
31, MARCH 31,
--------------------- ---------------
1994 1995 1996 1996 1997
---- ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from (principal payments on)
short-term borrowings, net........... -- 550 (440) (400) --
Proceeds from long-term debt.......... 500 1,000 450 -- --
Principal payments on long term debt.. (65) (198) (686) (162) (31)
Principal payments on capital lease
obligations.......................... (14) (110) (107) (19) (31)
Proceeds from exercise of stock op-
tions................................ -- 4 126 6 2
Proceeds from sale of common stock
pursuant to purchase agreement....... -- 746 -- -- --
Proceeds from sale of redeemable
convertible preferred stock and
redeemable common stock.............. -- -- 11,184 5,408 --
Proceeds from sale of common stock.... -- 156 500 -- --
Proceeds from sale of subsidiary com-
mon stock............................ -- -- 59 -- --
Treasury stock acquired............... -- (154) (531) (531) --
---- ------ ------- ------ -------
Net cash provided by (used for)
financing activities........... 421 1,994 10,555 4,302 (60)
---- ------ ------- ------ -------
Effects of exchange rates on cash and
cash equivalents....................... -- -- (30) (13) (7)
---- ------ ------- ------ -------
Net increase (decrease) in cash and cash
equivalents............................ 337 (75) 7,124 1,887 (2,366)
Cash and cash equivalents, beginning of
period................................. 2 339 264 264 7,388
---- ------ ------- ------ -------
Cash and cash equivalents, end of peri-
od..................................... $339 $ 264 $ 7,388 $2,151 $ 5,022
==== ====== ======= ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Cash paid for income taxes............ $ 11 $ 31 $ -- $ -- $ --
Cash paid for interest................ 57 227 327 60 46
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the years ended December 31, 1994, 1995 and 1996, the Company incurred
capital lease obligations of $52, $399 and $39, respectively.
In the year ended December 31, 1996, the Company issued 280,005 shares of
Class A common stock valued at $728 and paid cash of $87 to acquire all of the
outstanding shares of Vista Technologies Incorporated (Note 3).
In the year ended December 31, 1996, the Company issued 36,250 shares of
common stock to a stockholder in exchange for a note receivable of $58 from
the stockholder.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
Peritus Software Services, Inc. (the "Company") was incorporated in
Massachusetts in August, 1991. The Company provides software products and
services that enable organizations to improve the productivity, quality and
effectiveness of their information technology systems maintenance, or
"software evolution," functions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiary, Persist Servicios Software, S.A.
("Persist"), a Spanish software services entity (Note 3). All significant
intercompany balances and transactions are eliminated.
Revenue Recognition
Revenue associated with performance under contracts to provide outsourced
software maintenance, reengineering and development services is recognized
utilizing the percentage-of-completion method in the ratio that labor-hours
incurred to date bear to estimated total labor-hours at completion, provided
that collection of the related receivable is probable. Adjustments to contract
cost estimates are made in the periods in which the facts which require such
revisions become known. When the revised estimates indicate a loss, such loss
is provided for currently in its entirety. The costs of providing warranties
and follow-on customer support related to services performed are not
significant and have been accrued. Costs and estimated earnings in excess of
billings on uncompleted contracts represent revenue recognized in excess of
amounts billed. Billings in excess of costs and estimated earnings on
uncompleted contracts represent billings in excess of revenue recognized.
Revenue from end-user licenses is recognized when an agreement has been
executed, software and methodologies have been delivered, all significant
contractual obligations have been met and collection of the related receivable
is probable. Revenue from usage-based licenses is recognized when licensed
software has been delivered, the fee is fixed or determinable, all significant
contractual obligations have been met and collection of the related receivable
is probable.
Post contract customer support revenue, including that bundled with initial
license fees, is deferred and recognized ratably over the contractual periods
the services are provided. Revenue from consulting and training services is
recognized as the services are provided.
Significant Customers
Revenue from two customers accounted for 52% and 31% of the Company's total
revenue for the year ended December 31, 1994. Revenue from three customers
accounted for 50%, 13% and 11% of the Company's total revenue for the year
ended December 31, 1995. At December 31, 1995, the Company had amounts
receivable from the first customer, a related party, of $991,000 for billed
accounts receivable and $1,291,000 for costs and estimated earnings in excess
of billings on uncompleted contracts (Note 8). At December 31, 1995, the
Company had amounts receivable from the second customer of $52,000 for billed
accounts receivable and $439,000 for costs and estimated earnings in excess of
billings on uncompleted contracts, and from the third customer of $133,000 for
billed accounts receivable and $856,000 for costs and estimated earnings in
excess of billings on uncompleted contracts.
Revenue from three customers accounted for 29%, 15% and 12% of the Company's
total revenue for the year ended December 31, 1996. At December 31, 1996, the
Company had amounts receivable from the first
F-8
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
customer, a related party, of $123,000 for billed accounts receivable,
$501,000 for costs and estimated earnings in excess of billings on uncompleted
contracts and $1,400,000 for unbilled license revenue (Note 8). At December
31, 1996, the Company had amounts receivable from the second customer of
$115,000 for billed accounts receivable and from the third customer of $17,000
for billed accounts receivable and $797,000 for costs and estimated earnings
in excess of billings on uncompleted contracts.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentrations
of credit risk include trade accounts receivable. The Company primarily sells
to Fortune 1000 companies and therefore, generally does not require
collateral. Reserves for potential credit losses are maintained and such
losses, in the aggregate, have not exceeded management's expectations.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, line of credit
borrowings, demand notes payable, long-term debt and redeemable convertible
preferred stock. The carrying amounts of these instruments at December 31,
1996 approximate their fair values.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash primarily in money market accounts. Accordingly, these
investments are subject to minimal credit and market risk. The Company had no
cash equivalents in any period presented except for the three months ended
March 31, 1997.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of property and equipment is provided using the
straight-line method over the estimated useful lives of the assets or, where
applicable, over the lease term.
Software Development Costs
The Company capitalizes qualifying software development costs after
technological feasibility of the software has been established. Costs incurred
prior to the completion of a working model, which is the Company's basis for
determining technological feasibility, are charged to research and development
expense. Capitalized software costs are amortized ratably over the estimated
useful life of the software, generally three years, and are charged to cost of
revenue. During the years ended December 31, 1994, 1995 and 1996, costs
subject to capitalization were not significant and therefore, were not
capitalized. At December 31, 1996, the Company had $104,000 in acquired
unamortized capitalized software costs obtained in the Vista Technologies
Incorporated ("Vista") acquisition (Note 3). Amortization expense related to
capitalized software costs for the years ended December 31, 1994 and 1995 was
$63,000 in each year. Amortization expense related to capitalized software
costs for the year ended December 31, 1996 was $108,000, including $45,000
related to the capitalized software acquired from Vista.
Patent Costs
Costs associated with obtaining patents are capitalized as incurred and will
be amortized using the straight-line method over their estimated economic
lives beginning when each patent is issued. Pending such issuance, the Company
did not record amortization expense relating to capitalized patent costs
during the years ended December 31, 1994, 1995 or 1996.
Foreign Currency
Assets and liabilities of the Company's majority-owned foreign subsidiary
are translated into U.S. dollars at exchange rates in effect at the balance
sheet date. Income and expense items are translated at average exchange rates
for the period. Accumulated net translation adjustments are included in
stockholders' equity.
F-9
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounting for Stock-Based Compensation
Awards under the Company's employee stock option plans are accounted for in
accordance with Accounting Principles Board Opinion No. 25 and related
interpretations ("APB 25"). In January 1996, the Company adopted the
disclosure requirements of Statement of Financial Accounting Standards No.
123, ("SFAS 123"), "Accounting for Stock-Based Compensation" (Note 14).
Unaudited Pro Forma Net Income (Loss) Per Share
Unaudited pro forma net income (loss) per share is determined by dividing
the net income (loss) attributable to common stockholders by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, assuming the conversion of all convertible
preferred stock and the redeemable common stock right which will occur upon
the closing of a qualified public offering of the Company's common stock (Note
10).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock equivalents, regardless of their anti-dilutive impact, issued
at prices below the offering price per share during the twelve months
preceding the initial filing of the Company's Registration Statement and
through the effective date of the initial public offering of the Company's
common stock have been included in the calculation of unaudited pro forma net
income (loss) per share using the treasury stock method as if outstanding
since the beginning of each period presented.
Historical net income (loss) per share has not been presented on the basis
that it is irrelevant due to the significant change in the Company's capital
structure and resultant earnings or loss per share which will result upon
conversion of the convertible preferred stock. Supplemental net income (loss)
per share, giving effect to the use of a portion of the net proceeds of this
offering to repay the secured subordinated note payable, is not presented
since it does not differ materially from unaudited pro forma net income (loss)
per share.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Areas particularly subject to estimation include revenue
based on percentage-of-completion and the valuation allowance on deferred tax
assets. Actual amounts could differ from those estimates.
Interim Financial Data
The interim financial data as of March 31, 1997 and for the three months
ended March 31, 1996 and 1997 are unaudited; however, in the opinion of the
Company, the interim data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the financial
position and results of operations for the interim periods. The operating
results for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year ending December 31,
1997.
3. ACQUISITIONS
At December 31, 1994, the Company owned a 40% voting interest in Persist, a
Spanish corporation which provides software maintenance services, and used the
equity method to account for the investment. In 1995, the Company made
additional investments in Persist in the form of cash of $11,000 and
forgiveness by the Company of accounts receivable owed by Persist of $180,000,
of which $123,000 related to 1995 billings and $57,000 related to 1994
billings. Consequently, the Company's ownership was increased to approximately
69%, resulting in a change in financial reporting from the equity method to
consolidation beginning January 1, 1995. As a result of equity transactions
during 1996, the Company's ownership was reduced to approximately 64%.
F-10
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Persist acquisition was accounted for under the purchase method of
accounting in 1995. Accordingly, the purchase price was allocated based on the
estimated fair value of assets purchased and liabilities assumed upon
acquisition. The excess of cost over the fair value of net assets acquired of
$74,000 is being amortized over five years. The Company's results of
operations for the years ended December 31, 1995 and 1996 include the
operating results of Persist.
In January 1996, the Company issued 280,005 shares of its Class A common
stock valued at $728,000 and incurred $87,000 for transaction costs in
exchange for all of the outstanding shares of Vista. Vista is a developer of
computer-aided engineering software.
The Vista merger has been accounted for under the purchase method.
Accordingly, the purchase price was allocated based on the estimated fair
value of the assets purchased and liabilities assumed upon acquisition. No
value was allocated to in-process research and development. The excess of cost
over fair value of the net assets acquired of $173,000 is being amortized over
three years. Pro forma results of operations have not been presented because
the effect of this acquisition was not significant.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
ESTIMATED
USEFUL LIVES
(YEARS) 1995 1996
------------ ---------- ----------
<S> <C> <C> <C>
Equipment............................... 3-7 $1,369,000 $2,406,000
Furniture and fixtures.................. 5-7 577,000 787,000
Leasehold improvements.................. 5 89,000 149,000
---------- ----------
2,035,000 3,342,000
Less: Accumulated depreciation and amor-
tization............................... 695,000 1,372,000
---------- ----------
$1,340,000 $1,970,000
========== ==========
</TABLE>
Equipment under capital leases at December 31, 1995 and 1996 was $200,000
and $239,000, respectively, with related accumulated depreciation of $72,000
and $151,000, respectively. Furniture and fixtures under capital leases at
December 31, 1995 and 1996 was $271,000, with related accumulated depreciation
of $26,000 and $77,000, respectively. Depreciation expense related to assets
under capital leases was $11,000, $79,000 and $130,000 for the years ended
December 31, 1994, 1995 and 1996, respectively. Depreciation expense on all
fixed assets amounted to $228,000, $376,000 and $677,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
5. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES
Other accrued expenses and current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Accrued bonus and commissions......................... $ 434,000 $1,280,000
Other accrued expenses and current liabilities........ 704,000 807,000
---------- ----------
$1,138,000 $2,087,000
========== ==========
</TABLE>
F-11
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. BORROWINGS
Revolving Line of Credit
In September 1996, the Company repaid a revolving line of credit facility
with a bank with proceeds obtained from the Company's new line of credit
described below. The repaid line of credit allowed for a maximum borrowing of
$1,500,000, payable on demand, and would have expired on May 30, 1997.
Interest was payable monthly in arrears at the bank's prime rate plus 1%.
In September 1996, the Company entered into a new revolving line of credit
facility (the "Revolver") with a bank which bears interest at the bank's prime
rate plus 0.5% (8.75% at December 31, 1996). The maximum borrowing under the
Revolver is $3,500,000 and is limited to 75% of certain receivables plus 50%
of costs and estimated earnings in excess of billings as defined in the
Revolver agreement. Borrowings are collateralized by all of the assets of the
Company. Interest is payable monthly in arrears. The Revolver expires and all
outstanding amounts thereunder are payable on June 30, 1997. Under the
Revolver agreement, the Company is required to comply with certain financial
covenants. There were no borrowings outstanding, and $3,500,000 was available,
under the Revolver at December 31, 1996. The Company and the bank are
negotiating an extension of the line of credit agreement beyond June 30, 1997.
Equipment Line of Credit
In September 1996, the Company entered into an equipment financing agreement
(the "Equipment Line") with a bank to provide financing of up to $1,500,000
for the purchase through June 30, 1997 of certain equipment as defined in the
Equipment Line. Ratable principal and interest payments on any borrowings
under the Equipment Line are payable during the period July 1, 1997 through
June 1, 2000. Borrowings under the Equipment Line bear interest at the bank's
prime rate plus 1% (9.25% at December 31, 1996). Borrowings are collateralized
by the assets of the Company. Under the Equipment Line, the Company is
required to comply with certain financial covenants. Borrowings under the
Equipment Line were $619,000, and $825,000 remained available, at December 31,
1996.
Demand Note Payable
In September 1995, the Company obtained $150,000 of financing through a
demand note payable from a bank. Interest was payable monthly in arrears at
the bank's prime rate plus 1.0%. In January 1996, the Company repaid all
outstanding principal and interest on this note.
F-12
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Notes payable to bank in monthly principal installments
with interest at prime plus 2.5%, due in August 2000
through August 2001, secured by all assets of the
Company, the personal guarantee of the largest
stockholder, and the guarantee of the U.S. Small
Business Administration. These notes were retired in
September 1996......................................... $ 746,000 $ --
Secured subordinated note payable to bank (described
further below), with interest only payable quarterly
through June 30, 1998 at 10% per annum. Beginning
September 30, 1998, principal installments of $63,000
plus interest are payable quarterly through June 30,
2002................................................... 930,000 943,000
Term loan payable to bank in monthly principal
installments of $18,750, with interest at prime plus 1%
(9.25% at December 31, 1996), through September 1999,
secured by all assets of the Company. Under the term
loan, the Company is required to comply with certain
financial covenants. The Company was in violation of
certain of these covenants at December 31, 1996,
however, a waiver of the violations was granted by the
creditor............................................... -- 619,000
---------- ----------
1,676,000 1,562,000
Less--Current portion................................... 115,000 225,000
---------- ----------
$1,561,000 $1,337,000
========== ==========
</TABLE>
Secured Subordinated Note Payable
In May 1995, the Company issued a secured subordinated note payable for
$924,000, having a face value of $1,000,000 with interest payable at 10% per
annum. The note is subordinate to the bank debt and is collateralized by a
second security interest in all assets of the Company. In addition, the note
contains various restrictive covenants including, but not limited to, minimum
earnings and limitations on certain interest coverage, debt and equity ratios.
The Company was in violation of certain of these covenants at December 31,
1995 and 1996, however, a waiver of the violations was granted by the note
holder.
The note also included detachable warrants with an ascribed value of $76,000
for purchase of up to 312,500 shares of common stock for $1.60 per share. The
warrants expire on the later of June 30, 2000 or the repayment of the Note.
The Company has reserved 312,500 shares of common stock in the event of
exercise of the warrants. The warrant value was recorded as a discount from
the face value of the note. Amortization of this discount for the years ended
December 31, 1995 and 1996 was $6,000 and $13,000, respectively, which amounts
are included in interest expense.
F-13
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities
The future aggregate annual principal payments on long-term debt for each of
the years ended December 31 are as follows:
<TABLE>
<S> <C>
1997................................................................. $ 225,000
1998................................................................. 342,000
1999................................................................. 406,000
2000................................................................. 241,000
2001................................................................. 245,000
Thereafter........................................................... 103,000
----------
$1,562,000
==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
For the years ended December 31, 1994, 1995 and 1996, the Company recorded
revenue of $4,070,000, $9,267,000 and $5,579,000, respectively, related to
outsourcing and license agreements with a corporation owning 18% of the
outstanding stock of the Company at December 31, 1996. At December 31, 1995
and 1996, $991,000 and $123,000, respectively, is included in accounts
receivable from related parties with respect to this stockholder, and
$1,291,000 and $501,000, respectively, is included in costs and estimated
earnings in excess of billings on uncompleted contracts with related parties;
also, at December 31, 1996, $1,400,000 is included in unbilled license
revenue. This stockholder and customer also had certain stock purchase rights
(Note 17).
During the year ended December 31, 1996, Persist recorded revenue of
$776,000 related to outsourcing services to a corporation owning 27% of the
outstanding stock of Persist at December 31, 1996 (Note 3). During the year
ended December 31, 1994, the Company recorded revenue of $71,000 related to
consulting work performed on behalf of Persist, 40% of which was owned at that
time by the Company (Note 3).
In February 1996, the Company accepted a $58,000 note receivable from an
employee of the Company in connection with the exercise of employee stock
options. This note matures on February 6, 2001, and is secured by the assets
of the now former employee. Interest is payable quarterly in arrears and
accrues on all outstanding principal plus previously accrued but unpaid
interest at the prime rate.
9. INCOME TAXES
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- -----------
<S> <C> <C> <C>
Domestic..................................... $581,000 $(45,000) $(5,141,000)
Foreign...................................... -- 135,000 101,000
-------- -------- -----------
$581,000 $ 90,000 $(5,040,000)
======== ======== ===========
</TABLE>
F-14
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for estimated income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- -----------
<S> <C> <C> <C>
Current:
Federal.................................... $ -- $(14,000) $ --
State...................................... -- (1,000) --
Foreign.................................... -- -- 43,000
-------- -------- -----------
-- (15,000) 43,000
-------- -------- -----------
Deferred:
Federal.................................... $147,000 $ 3,000 $(1,798,000)
State...................................... 32,000 4,000 (435,000)
-------- -------- -----------
179,000 7,000 (2,233,000)
Deferred tax asset valuation allowance...... -- -- 2,047,000
-------- -------- -----------
179,000 7,000 (186,000)
-------- -------- -----------
$179,000 $ (8,000) $ (143,000)
======== ======== ===========
</TABLE>
No current federal or state income taxes were payable in the years ended
December 31, 1994, 1995 and 1996 as a result of losses incurred.
The components of deferred tax assets and liabilities follow:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 423,000 $ 2,641,000
Tax credit carryforwards........................... 102,000 531,000
Deferred revenue................................... -- 238,000
Nondeductible accrued expenses..................... 51,000 64,000
Unexercised stock options.......................... 56,000 56,000
Other.............................................. 44,000 11,000
--------- -----------
Gross deferred tax assets........................... 676,000 3,541,000
--------- -----------
Deferred tax liabilities:
Estimated earnings on uncompleted contracts........ (862,000) (1,317,000)
Capitalized research and development costs, net.... -- (46,000)
--------- -----------
Gross deferred tax liabilities..................... (862,000) (1,363,000)
--------- -----------
Net deferred tax (liabilities) assets............... (186,000) 2,178,000
Deferred tax asset valuation allowance.............. -- (2,178,000)
--------- -----------
$(186,000) $ --
========= ===========
</TABLE>
F-15
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the amount of reported income tax provision
(benefit) and the amount determined by applying the U.S. federal statutory
rate of 34% to the income (loss) before income taxes, minority interest and
equity in loss of less than majority owned company follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
-------- -------- -----------
<S> <C> <C> <C>
Income (loss) at statutory rate........... $198,000 $ 31,000 $(1,699,000)
Federal research and development credits.. -- (53,000) (251,000)
Income (losses) of foreign subsidiary not
subject to taxation...................... (36,000) 13,000 --
Permanent differences and other, net...... (4,000) (3,000) 70,000
State tax benefit, net of federal effect.. 21,000 4,000 (310,000)
Change in deferred tax asset valuation
allowance................................ -- -- 2,047,000
-------- -------- -----------
$179,000 $ (8,000) $ (143,000)
======== ======== ===========
</TABLE>
At December 31, 1996, the Company has provided a valuation allowance for the
full amount of the net deferred tax assets, since the realization of these
future benefits is not sufficiently assured. If the Company achieves
profitability, these deferred tax assets may be available to offset future
income tax liabilities and expense.
At December 31, 1996, the Company had available net operating loss
carryforwards of approximately $6,659,000 and $6,286,000 for federal and state
income tax reporting purposes, respectively. At December 31, 1996, the Company
had research and development credit carryforwards of $186,000 and $171,000
available to offset future federal tax and state tax, respectively. The
Company also has federal foreign tax credit carryforwards of $175,000. These
carryforwards will expire in the years 1999 through 2011 if not utilized.
In accordance with certain provisions of the Internal Revenue Code, a change
in ownership of greater than 50% within a three-year period will place an
annual limitation on the Company's ability to utilize its existing federal net
operating loss and research and development tax credit carryforwards. The
change in ownership that may result from an initial public offering could
result in such a limitation.
10. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Issuances
During March and October 1996, the Company issued 1,903,525 shares of Series
A redeemable convertible preferred stock and 1,818,182 shares of Series B
redeemable convertible preferred stock ("Series A and B preferred stock") for
cash proceeds of $5,207,000 and $5,776,000, respectively, net of issuance
costs of $123,000 and $224,000, respectively.
Conversion
Each preferred share is convertible into one common share at the option of
the preferred stockholder or automatically upon the closing of an initial
public offering of the Company's common stock in which proceeds from the
public equal or exceed $15,000,000.
At December 31, 1996, Series A and B preferred stock are convertible into a
total of 3,721,707 common shares. The conversion rates are to be adjusted for
certain dilutive and anti-dilutive events. The Company has reserved 1,903,525
and 1,818,182 shares of common stock for the conversion of Series A and B
preferred stock, respectively.
F-16
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A and B preferred stock are entitled to receive, on a
pro-rata basis, $3.825 and $3.30 per share, plus all accrued and unpaid
dividends, respectively.
Voting
The holders of Series A and B preferred stock are entitled to vote, together
with the holders of common stock on all matters submitted to stockholders for
a vote. Each preferred stockholder is entitled to the number of votes equal to
the number of shares of common stock into which each Series A and B share is
convertible at the time of such vote.
Dividends
The holders of the Series A and B preferred stock are entitled to receive
cumulative annual dividends in the amount of $0.3825 and $0.33 per share plus
10% of previously accrued and unpaid dividends, respectively, whether or not
declared by the Board of Directors. These dividends are payable upon
liquidation, dissolution or winding-up of the Company, or upon redemption of
the respective preferred stock. Cumulative and unpaid dividends on the Series
A and B preferred stock at December 31, 1996 were $582,000 and $107,000,
respectively.
Redemption
On each of the fifth, sixth and seventh anniversaries of the applicable
series closing date, the Company is required to redeem 33 1/3 percent of the
Series A and B preferred stock at a redemption price equal to $2.80 and $3.30
per share, respectively, plus accrued and unpaid dividends through the
redemption date. During 1996, the Company recorded a charge to accumulated
deficit of $347,000 to reflect the accretion of Series A and B preferred stock
to redemption value. The carrying value of the Series A and B preferred stock
reflects the original issuance price, net of issuance costs, plus accrued and
unpaid dividends and accretion to redemption value.
Redeemable Common Stock Right
In connection with the 1996 issuance of Series A preferred stock, the
Company sold from treasury 71,775 shares of its Class A common stock to
certain purchasers of the Series A preferred stock for cash proceeds of
$201,000. Also in connection with this issuance, an officer of the Company
sold 625,000 shares of the Company's Class A common stock to certain
purchasers of the Series A preferred stock. In conjunction with any redemption
of the Series A preferred stock, the holders of the Series A preferred stock
must redeem, at a redemption price equal to $2.80 per share, 0.366 shares of
Class A common stock for each redeemed share of the Series A preferred stock.
The Company incurred during 1996 a charge to accumulated deficit of $66,000 to
reflect the accretion of this Class A common stock to redemption value. The
carrying value of the redeemable common stock right reflects the cash proceeds
to the Company for the underlying Class A common stock, plus accretion to
redemption value.
Future Redemptions
Required redemption amounts for the Series A and B preferred stock and the
redeemable common stock right, excluding any cumulative and unpaid dividends,
are as follows:
<TABLE>
<CAPTION>
REDEMPTION
YEAR AMOUNT
---- ----------
<S> <C>
2001........................................................... $4,427,000
2002........................................................... 4,427,000
2003........................................................... 4,427,000
</TABLE>
F-17
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited Pro Forma Balance Sheet
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series A and B preferred stock will automatically
convert into 3,721,707 shares of common stock. In addition, the redeemable
common stock right also automatically terminates upon the closing of the
Company's initial public offering, as its redemption feature is directly
associated to the redemption of the Series A preferred stock. These
conversions have been reflected in the unaudited pro forma balance sheet as of
March 31, 1997.
In connection with the initial public offering, the Company expects to file
Articles of Amendment to the Articles of Organization which will (i) authorize
50,000,000 shares of common stock, $.01 par value, (ii) authorize 5,000,000
shares of Preferred Stock, $.01 par value, under terms that allow the Board of
Directors to designate one or more classes of preferred stock and to designate
rights, privileges, preferences and limitations of each class, and (iii)
redesignate each share of its Class A common stock into one share of Common
Stock. The effects of this amendment to the Articles of Organization have been
reflected in the unaudited pro forma balance sheet as of March 31, 1997.
11. COMMON STOCK
In April and March 1995, the Company amended its Articles of Organization to
create two classes of common stock, Class A and Class B, with 6,250,000 and
100,000 shares authorized, respectively. Class A and Class B shares maintain
identical rights in all respects except that Class B shares are non-voting and
convert to Class A common stock upon the closing of an initial public offering
with proceeds greater than $10,000,000. Upon adoption of the amended Articles
of Organization, each share of common stock then outstanding was converted to
one share of Class A common stock.
In March 1996, the Company effected a two-and-one-half-for-one stock split
of the Company's Class A and Class B common stock in the form of a 150% stock
dividend. Share amounts in these financial statements have been retroactively
adjusted to reflect this stock split.
On December 31, 1996, the Company retired all Class A and Class B common
stock remaining in treasury as a result of various previous repurchases.
12. DIRECTOR STOCK OPTION PLAN
In May 1997, the Board of Directors authorized, subject to stockholder
approval, the 1997 Director Stock Option Plan (the "Director Plan"). The
Director Plan authorizes the grant of up to 200,000 options to purchase Common
Stock of the Company. Under the Director Plan, each non-employee director of
the Company at the time of the effective date of the Company's initial public
offering will receive options to purchase 15,000 shares of common stock. Any
director elected after the Company's initial public offering will receive an
option to purchase 15,000 shares of the Company's common stock upon his or her
election to the Board of Directors. In addition, each director will receive an
option to purchase 3,000 shares of the Company's common stock at each annual
meeting of the stockholders beginning with the 1998 annual meeting. All option
grants made under the Director Plan have exercise prices equivalent to the
fair market value on the date grant, and will vest in three annual
installments beginning on the anniversary date of the grant, so long as the
optionee remains a director of the Company.
13. EMPLOYEE STOCK PURCHASE PLANS
In February 1995, the Company adopted the 1995 Employee Stock Purchase Plan
("1995 Plan") for all employees of the Company. The 1995 Plan allows for the
repurchase of up to 100,000 shares of Class A voting common stock from
existing stockholders at $1.60 per share and the subsequent issuance of Class
B non-voting
F-18
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
common stock. In March 1995, the Company repurchased 95,537 shares of Class A
common stock from existing shareholders at $1.60 per share and maintained
these shares in treasury at cost. In order to provide substantially all
employees an opportunity for equity participation, the Company then sold
95,537 shares of Class B common stock at $1.60 per share to those employees
electing to subscribe. The 1995 Plan was no longer effective at December 31,
1995.
In May 1997, the Board of Directors authorized, subject to stockholder
approval, the 1997 Employee Stock Purchase Plan (the "1997 Plan"). The 1997
Plan authorizes the issuance of up to 200,000 shares of the Company's common
stock to eligible employees. Under the 1997 Plan, the Company is authorized to
make four consecutive six month offerings during which employees may purchase
shares of the Company's common stock through payroll deductions made over the
term of the offering. The per share purchase price of each offering is equal
to the lesser of 85% of the fair market value at the beginning or end of the
offering period (as defined by the 1997 Plan). The first offering period will
commence on October 1, 1997.
14. LONG TERM INCENTIVE PLAN
In January 1992, the Board of Directors established a Long Term Incentive
Plan (the "Plan") which allows for the grant of awards in the form of
incentive and non-qualified stock options, stock units, restricted common
stock and stock appreciation rights to employees, directors, independent
contractors and consultants. In 1996, the Board of Directors authorized the
issuance of both Class A and Class B common stock under the Plan. The total
number of shares which have been reserved under the Plan is 3,388,820,
comprised of 3,046,695 shares of Class A and 342,145 shares of Class B common
stock. Incentive stock options are granted at an exercise price equal to the
fair market value of the Company's common stock as determined by the Board of
Directors at the grant date (or no less than 110% of the fair market value in
the case of optionees holding more than 10% of the voting stock of the
Company) and expire 10 years from the date of grant or upon termination of
employment. Non-qualified stock options are granted at an exercise price
determined by the Board of Directors and expire 10 years from the date of
grant. Both the incentive and non-qualified stock options are exercisable at
various dates as determined by the Board of Directors. At December 31, 1995
and 1996, no stock units, restricted stock or stock appreciation rights were
issued under the Plan. In May 1997, the Board of Directors authorized, subject
to shareholder approval, the 1997 Stock Incentive Plan (the "Incentive Plan").
The Incentive Plan is intended to replace the Company's Long Term Incentive
Plan and provides for the issuance of up to 1,950,000 shares of Common Stock.
Transactions for stock options under the Plan during the years ended
December 31, 1994, 1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,071,575 $0.10 1,356,700 $0.23 1,606,025 $0.64
Granted................. 297,875 0.72 455,250 1.96 1,558,292 3.04
Exercised............... -- -- (95,000) 0.05 (198,533) 0.92
Forfeited............... (12,750) 0.08 (110,925) 1.58 (40,117) 1.20
--------- --------- ---------
Outstanding at year
end.................... 1,356,700 0.23 1,606,025 0.64 2,925,667 1.88
========= ========= =========
Options exercisable at
year end............... 454,927 0.07 692,462 0.21 1,030,036 0.47
========= ========= =========
</TABLE>
F-19
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following summarizes information regarding stock options outstanding
under the Plan at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE
------------------------ ----------- ------------ --------
<S> <C> <C> <C>
$0.01-0.10............................... 675,875 5.9 $0.07
0.15-0.24............................... 174,075 6.5 0.23
0.48-0.80............................... 291,900 7.5 0.66
1.60.................................... 93,750 8.2 1.60
2.60-3.30............................... 1,690,067 9.8 3.00
---------
2,925,667 1.88
=========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
---------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES EXERCISABLE LIFE (YEARS) PRICE
------------------------ ----------- ------------ --------
<S> <C> <C> <C>
$0.01-0.10............................... 577,125 5.8 $0.07
0.15-0.24............................... 174,075 6.5 0.23
0.48-0.80............................... 155,888 7.5 0.65
1.60.................................... 28,125 8.1 1.60
2.60-3.30............................... 94,823 9.3 2.70
---------
1,030,036 0.47
=========
</TABLE>
F-20
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In accordance with APB 25, the Company recognized $83,000 and $118,000 in
compensation expense under the Plan for the years ended December 31, 1995 and
1996, respectively. Had compensation cost for the Plan been determined based
upon the fair value of options at their grant dates, as prescribed in SFAS
123, the Company's net income (loss) would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1996
------- -----------
<S> <C> <C>
As reported............................................. $55,000 $(4,921,000)
Pro forma............................................... 36,000 (5,049,539)
</TABLE>
The fair value of options at date of grant was estimated using the minimum
value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Expected life (years)....................................... 5 5
Risk-free interest rate..................................... 7.37% 6.25%
Dividend yield.............................................. 0% 0%
Fair value of option grants--exercise price equal to the
fair value of
the related stock.......................................... $ 0.35 $ 0.52
Fair value of option grants--exercise price less than the
fair value of
the related stock.......................................... $ 0.14 $ --
</TABLE>
Because options vest over several years and additional option grants are
expected to be made in future years, the above pro forma results applying the
provisions of SFAS 123 are not representative of pro forma results for future
years.
15. DEFINED CONTRIBUTION PLAN
The Company maintains a defined contribution plan under Section 401(k) of
the Internal Revenue Code covering substantially all employees. Under the
plan, employees may contribute the lower of up to 20% of their salaries or a
dollar amount prescribed by the Internal Revenue Code. The Board of Directors
may elect to make a discretionary contribution to the plan. Vesting with
respect to the Company's discretionary contribution occurs four years from the
date the employee is admitted to the plan. There were no contributions made by
the Company to the Plan during the years ended December 31, 1994, 1995 and
1996.
F-21
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment: software maintenance,
tools and services.
The Company operates in diverse geographic areas. Intercompany sales and
transfers between geographical areas are accounted for at prices which are
designed to be representative of unaffiliated party transactions. Information
by geographic area at December 31, 1995 and 1996, and for the years then
ended, is summarized below; the Company operated only in North America during
the year ended December 31, 1994.
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS
------------------------
NORTH AMERICA EUROPE ELIMINATIONS TOTAL
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
1995
Revenue to unaffiliated
customers................. $17,426,000 $1,079,000 $ -- $18,505,000
Intercompany revenue....... 159,000 -- (159,000) --
----------- ---------- --------- -----------
Total revenue............ 17,585,000 1,079,000 (159,000) 18,505,000
Income from operations..... 164,000 129,000 -- 293,000
Identifiable assets........ 6,977,000 430,000 (228,000) 7,179,000
Capital expenditures....... 804,000 20,000 -- 824,000
Depreciation and
amortization.............. 441,000 2,000 -- 443,000
1996
Revenue to unaffiliated
customers................. $17,435,000 $1,800,000 $ -- $19,235,000
Intercompany revenue....... -- 84,000 (84,000) --
----------- ---------- --------- -----------
Total revenue............ 17,435,000 1,884,000 (84,000) 19,235,000
Income (loss) from
operations................ (4,821,000) 77,000 -- (4,744,000)
Identifiable assets........ 16,635,000 1,575,000 (485,000) 17,725,000
Capital expenditures....... 1,227,000 13,000 -- 1,240,000
Depreciation and
amortization.............. 850,000 4,000 -- 854,000
</TABLE>
17. COMMITMENTS
Stock Purchase Agreement
Pursuant to a stock purchase agreement between a stockholder (and the
Company's largest customer--Note 8) and the Company dated May 29, 1992, and a
follow-on agreement dated September 1, 1994, the Company granted to the
stockholder certain rights and privileges. Among these is the right of first
refusal to purchase a pro rata portion of any new securities issued by the
Company through the date of closing of the first public offering of the
Company's common stock, the right of first refusal to acquire a majority
voting interest in the Company should any third party seek to acquire such an
interest during the period through September 1, 1999, an option to purchase up
to 15% of the authorized common shares of the Company before December 31, 1995
at a price not to exceed $1.48 per share, and the right to purchase at the
then fair market value a greater than 15% voting interest if the Company
grants to any third party the right to acquire such an interest during the
period through September 1, 1999. Under this agreement, in October 1995, the
stockholder acquired 512,500 shares of Class A common stock at $1.48 per share
resulting in proceeds, net of interest costs of $12,000, of $746,000 to
increase their interest in the Company at that time to 15% of the authorized
shares.
F-22
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Operating and Capital Leases
The Company leases its operating facilities and certain equipment under
noncancelable operating and capital lease agreements. Rent expense for the
years ended December 31, 1994, 1995 and 1996 was $282,000, $839,000 and
$999,000, respectively. Future minimum lease payments under noncancelable
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
------------ ---------- --------
<S> <C> <C>
1997.................................................... $1,022,000 $ 94,000
1998.................................................... 952,000 73,000
1999.................................................... 51,000 133,000
2000.................................................... -- 9,000
2001.................................................... -- 6,000
---------- --------
$2,025,000 315,000
==========
Less--Amount representing interest...................... 40,000
--------
Present value of minimum lease payments................. $275,000
========
</TABLE>
F-23
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates or an
offer to, or a solicitation of, any person in any jurisdiction where such an
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company or
that the information contained herein is correct as of any time subsequent to
the date hereof.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 33
Management............................................................... 47
Certain Transactions..................................................... 56
Principal and Selling Stockholders....................................... 60
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale.......................................... 65
Underwriting............................................................. 67
Legal Matters............................................................ 68
Experts.................................................................. 68
Additional Information................................................... 69
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-------------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,900,000 SHARES
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
Montgomery Securities
Wessels, Arnold & Henderson
H.C. Wainwright & Co., Inc.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 12,128
NASD filing fee................................................. 4,502
Nasdaq National Market listing fee.............................. 50,000
Blue Sky fees and expenses...................................... 15,000
Transfer Agent and Registrar fees............................... 10,000
Accounting fees and expenses.................................... 200,000
Legal fees and expenses......................................... 250,000
Director and Officer Liability Insurance........................ 200,000
Printing and mailing expenses................................... 100,000
Miscellaneous................................................... 33,370
--------
Total....................................................... $875,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of Chapter 156B of the Massachusetts General Laws ("Section 67")
provides that a corporation may indemnify its directors and officers to the
extent specified in or authorized by (i) the articles of organization, (ii) a
by-law adopted by the stockholders or (iii) a vote adopted by the holders of a
majority of the shares of stock entitled to vote on the election of directors.
In all instances, the extent to which a corporation provides indemnification
to its directors and officers under Section 67 is optional. In its Articles of
Organization, the Registrant has elected to commit to provide indemnification
to its directors and officers in specified circumstances. Generally, Article 6
of the Registrant's Articles of Organization indemnifies directors and
officers of the Registrant against liabilities and expenses arising out of
legal proceedings brought against them by reason of their status or service as
directors or officers or by reason of their agreeing to serve, at the request
of the Registrant, as a director or officer of, or in a similar capacity with,
another organization or in any capacity with respect to any employee benefit
plan of the Registrant. Under this provision, a director or officer of the
Registrant shall be indemnified by the Registrant for all expenses, judgments,
fines and amounts paid in settlement of such proceedings, even if he or she is
not successful on the merits, if he or she acted in good faith and in a manner
he or she reasonably believed to be in the best interests of the Registrant.
The Registrant's Articles of Organization establish the presumption that the
director or officer has met the applicable standard of conduct required for
indemnification. The indemnification above shall be made unless the Registrant
determines that the applicable standard of conduct has not been met. Such a
determination may be made by a majority of a quorum of the directors,
independent legal counsel, a court of competent jurisdiction or a majority
vote of a quorum of the outstanding shares of stock (which quorum shall
consist of stockholders who are not parties to the suit). The Board of
Directors shall authorize advancing litigation expenses to a director or
officer at his request upon receipt of an undertaking by such director or
officer to repay such expenses if it is ultimately determined that he or she
is not entitled to indemnification for such expenses.
The Registrant's Articles of Organization also provide that, in the event of
a determination by the Registrant that a director or officer did not meet the
standard of conduct required for indemnification, or if the Registrant fails
to make an indemnification payment or an advance of expenses within 60 days
after such payment is claimed by a director or officer, such director or
officer may petition a court to make an independent determination of whether
such director or officer is entitled to indemnification. The Registrant's
Articles of Organization explicitly provide for partial indemnification of
costs and expenses in the event that a director of officer is not entitled to
full indemnification.
II-1
<PAGE>
Article 6 of the Registrant's Articles of Organization also eliminates the
personal liability of the Registrant's directors to the Registrant or its
stockholders for monetary damages for breach of a director's fiduciary duty,
except to the extent such elimination or limitation is prohibited by Chapter
156B of the Massachusetts General Laws.
The Registrant has purchased and maintains insurance coverage under a policy
insuring directors and officers of the Registrant against certain liabilities
which they may incur as directors or officers of the Registrant.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding the number of
shares of Common Stock and Preferred Stock issued, and the number of options
granted, by the Registrant since April 1994. All numbers relating to shares of
Common Stock reflect (i) a two-and-one-half-for-one split effective March 15,
1996, (ii) the redesignation of the Registrant's Class A Voting Common Stock
as Common Stock prior to the effective date of this Registration Statement and
(iii) the conversion of the Registrant's Class B Non-Voting Common Stock into
Common Stock upon the closing of the Registrant's initial public offering.
Further included is the consideration, if any, received by the Registrant for
such shares and options and information relating to the section of the
Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
1. On April 25, 1995, the Registrant issued an aggregate of 95,537 shares of
Common Stock at a purchase price per share of $1.60 to certain of its
employees in connection with the Registrant's 1995 Employee Stock Purchase
Plan.
2. On May 30, 1995, the Registrant issued a warrant to purchase 312,500
shares of Common Stock for an aggregate exercise price of $500,000 to
Massachusetts Capital Resource Company.
3. On October 31, 1995, the Registrant issued 512,500 shares of Common Stock
to Bull HN Information Systems Inc. for an aggregate purchase price of
$758,500.
4. On January 29, 1996, the Registrant issued 280,005 shares of its Common
Stock valued at $728,000 to certain stockholders of Vista Technologies
Incorporated ("Vista") in connection with an Agreement and Plan of Merger
entered into between the Registrant and Vista.
5. On March 15, 1996, the Registrant issued an aggregate of 1,903,525 shares
of Series A Convertible Preferred Stock for an aggregate consideration of
$5,329,870 to the following investors: (i) Matrix Partners IV, L.P., (ii)
Matrix IV Entrepreneurs Fund, L.P., (iii) Greylock Equity Limited Partnership,
(iv) Massachusetts Capital Resource Company, (v) Wendy Caplan, (vi) Thomas
Deary and Therese Deary, (vii) James Carroll and Mary Carroll, (viii) Arthur
Carr and (ix) Michael Deary and Lauri Deary.
6. On March 15, 1996, the Registrant issued 71,775 shares of Common Stock
for consideration of $200,970 to Massachusetts Capital Resource Company.
7. On October 28, 1996, the Registrant issued an aggregate of 1,818,182
shares of Series B Convertible Preferred Stock to 25 investors for aggregate
consideration of $6,000,000.
8. On December 30, 1996, the Registrant issued 151,515 shares of Common
Stock to Douglas A. Catalano at a price per share of $3.30 pursuant to an
Employment Agreement, dated December 30, 1996, between the Registrant and Mr.
Catalano.
II-2
<PAGE>
9. During 1994, 1995, 1996 and the four months ended April 30, 1997, the
Registrant granted, pursuant to its 1992 Long-Term Incentive Plan, options to
purchase an aggregate of 2,566,417 shares of Common Stock at various exercise
prices ranging from $0.48 to $8.20 per share to certain employees of the
Registrant. These options were granted pursuant to option agreements subject
to certain vesting requirements.
As of April 30, 1997, options to purchase 3,065,238 shares of Common Stock
granted by the Registrant pursuant to the 1992 Long-Term Incentive Plan were
outstanding.
The Registrant's 1997 Stock Incentive Plan, 1997 Employee Stock Purchase
Plan and 1997 Director Stock Option Plan were adopted by the Board of
Directors in May 1997. As of May 13, 1997, no shares of Common Stock had been
granted under these plans.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from Securities Act registration set
forth in Sections 3(b) and 4(2) of the Securities Act, or any regulations
promulgated thereunder, relating to sales by an issuer not involving any
public offering, or (ii) in the case of certain options to purchase shares of
Common Stock and shares of Common Stock issued upon the exercise of such
options, such offers and sales were made in reliance upon an exemption from
registration under Rule 701 of the Securities Act. No underwriters were
involved in the foregoing sales of securities.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Articles of Organization of the Registrant, as amended.
3.2 Restated Articles of Organization of the Registrant, to be
effective upon the closing of this offering.
3.3 By-Laws of the Registrant, as amended.
3.4 Amended and Restated By-Laws of the Registrant, to be effective
upon the closing of this offering.
4 Specimen Certificate for shares of Common Stock.
*5 Opinion of Hale and Dorr LLP.
10.1 Long-Term Incentive Plan (1992).
10.2 1997 Stock Incentive Plan.
10.3 1997 Director Stock Option Plan.
10.4 1997 Employee Stock Purchase Plan.
10.5 Lease dated February 1, 1995, as amended, between Wang
Laboratories, Inc. and the Registrant.
10.6 Common Stock Purchase Agreement dated May 29, 1992 between the
Registrant and Bull HN Information Systems Inc.
10.7 Agreement of Amendment dated as of March 15, 1996 between the
Registrant and Bull HN Information Systems Inc.
10.8 Note and Warrant Purchase Agreement dated as of May 30, 1995
between the Registrant and Massachusetts Capital Resource Company.
10.9 Common Stock Purchase Warrant, due May 30, 1995.
10.10 Secured Subordinated Note due 2002, dated May 30, 1995.
10.11 Voting Agreement dated as of May 30, 1995 among the Registrant,
Dominic K. Chan and Massachusetts Capital Resource Company.
10.12 Security Agreement dated as of May 30, 1995 between the Registrant
and Massachusetts Capital Resource Company.
10.13 Series A Convertible Preferred Stock and Class A Common Stock
Purchase Agreement dated as of March 15, 1996 among the Registrant
and the purchasers named in Schedule I thereto.
10.14 Registration Rights Agreement dated as of March 15, 1996, as
amended, among the Registrant and the stockholders listed on the
signature pages thereto.
10.15 Stock Restriction Agreement dated as of March 15, 1996, as
amended, among the Registrant, Dominic K. Chan and Marsha C. Chan
and the stockholders listed on the signature pages thereto.
10.16 Voting Agreement dated as of March 15, 1996 among the Registrant
and the stockholders listed in the signature pages thereto.
10.17 Stock Option Agreement dated as of March 15, 1996 among the
Registrant, Dominic K. Chan and Marsha C. Chan.
10.18 Non-Competition Agreement dated as of March 15, 1996 between the
Registrant and Dominic K. Chan.
10.19 Series B Convertible Preferred Stock Purchase Agreement dated as
of October 28, 1996 among the Registrant and the purchasers named
in Schedule I thereto.
10.20 Employment Agreement dated as of December 30, 1996 between the
Registrant and Douglas A. Catalano.
10.21 Employment Agreement dated as of January 27, 1997 between the
Registrant and Robert D. Savoia.
10.22 Letter Agreement dated as of August 15, 1996 between the
Registrant and Leonard Miller.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+10.23 Master Software Services Agreement dated as of February 3, 1992
between the Registrant and Bull HN Information Systems Inc.
+10.24 License Agreement dated as of July 29, 1996 between the Registrant
and Bull HN Information Inc.
+10.25 Master License Agreement dated as of October 21, 1996, as amended,
between the Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
+10.26 Engineering Consultant Services Agreement, as amended, between
Stratus Computer, Inc. and the Registrant, dated November 30,
1993.
10.27 Letter Agreement dated September 6, 1996 between the Registrant
and Fleet National Bank.
10.28 Promissory Note between the Registrant and Fleet National Bank in
the amount of $3,500,000, dated September 6, 1996.
10.29 Promissory Note between the Registrant and Fleet National Bank in
the amount of $675,000, dated September 6, 1996.
10.30 Promissory Note between the Registrant and Fleet National Bank in
the amount of $825,000, dated September 6, 1996.
10.31 Inventory, Accounts Receivable and Intangibles Security Agreement
between the Registrant and Fleet National Bank, dated September 6,
1996.
10.32 Supplemental Security Agreement between the Registrant and Fleet
National Bank, dated September 6, 1996.
10.33 Security Agreement (Trademarks) between the Registrant and Fleet
National Bank, dated September 6, 1996.
10.34 Security Agreement (Patents) between the Registrant and Fleet
National Bank, dated September 6, 1996.
10.35 Subordination Agreement between Massachusetts Capital Resource
Company and Fleet National Bank, dated September 6, 1996.
+10.36 License and Alliance Agreement dated as of May 1, 1996, as
amended, between the Registrant and CSC Consulting, Inc.
10.37 Agreement and Plan of Merger among the Registrant, Vista
Technologies Incorporated and its stockholders, dated January 29,
1996.
+10.38 Letter of Intent dated May 9, 1997 between the Registrant and
VIASOFT, Inc.
11 Computation of earnings per common share.
21 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5).
24 Power of Attorney (included on page II-7).
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted because they are not
required or because the required information is given in the Registrant's
Consolidated Financial Statements or Notes thereto.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Restated Articles of
Organization of the Registrant and the laws of the Commonwealth of
Massachusetts, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted form the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN BILLERICA, MASSACHUSETTS, ON THIS
14TH DAY OF MAY, 1997.
Peritus Software Services, Inc.
/s/ Dominic K. Chan
By: _________________________________
DOMINIC K. CHAN CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Peritus Software Services,
Inc., hereby severally constitute and appoint Dominic K. Chan, Douglas A.
Catalano, Allen K. Deary, Julian Chan and Peter B. Tarr, and each of them
singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated
below, the Registration Statement on Form S-1 filed herewith and any and all
pre-effective and post-effective amendments to said Registration Statement,
and any subsequent Registration Statement for the same offering which may be
filed under Rule 462(b), and generally to do all such things in our names and
on our behalf in our capacities as officers and directors to enable Peritus
Software Services, Inc. to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto or to any subsequent Registration Statement
for the same offering which may be filed under Rule 462(b).
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Dominic K. Chan Chairman of the May 14, 1997
- ------------------------------------- Board and Chief
DOMINIC K. CHAN Executive Officer
(Principal
Executive Officer)
/s/ Douglas A. Catalano President, Chief May 14, 1997
- ------------------------------------- Operating Officer
DOUGLAS A. CATALANO and Director
/s/ Allen K. Deary Vice President, May 14, 1997
- ------------------------------------- Finance, Chief
ALLEN K. DEARY Financial Officer
and Director
(Principal
Financial Officer)
II-7
<PAGE>
SIGNATURE TITLE DATE
/s/ John E. MacPhee Director of Finance May 14, 1997
- ------------------------------------- and Treasurer
JOHN E. MACPHEE (Principal
Accounting Officer)
/s/ Arthur Carr Director May 14, 1997
- -------------------------------------
ARTHUR CARR
/s/ John Giordano Director May 14, 1997
- -------------------------------------
JOHN GIORDANO
/s/ W. Michael Humphreys Director May 14, 1997
- -------------------------------------
W. MICHAEL HUMPHREYS
/s/ Axel Leblois Director May 14, 1997
- -------------------------------------
AXEL LEBLOIS
/s/ Henry McCance Director May 14, 1997
- -------------------------------------
HENRY MCCANCE
/s/ Roland Pampel Director May 14, 1997
- -------------------------------------
ROLAND PAMPEL
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Articles of Organization of the Registrant, as amended.
3.2 Restated Articles of Organization of the Registrant, to be
effective upon the closing of this offering.
3.3 By-Laws of the Registrant, as amended.
3.4 Amended and Restated By-Laws of the Registrant, to be effective
upon the closing of this offering.
4 Specimen Certificate for shares of Common Stock.
*5 Opinion of Hale and Dorr LLP.
10.1 Long-Term Employee Incentive Plan (1992).
10.2 1997 Stock Incentive Plan.
10.3 1997 Director Stock Option Plan.
10.4 1997 Employee Stock Purchase Plan.
10.5 Lease dated February 1, 1995, as amended, between Wang
Laboratories, Inc. and the Registrant.
10.6 Common Stock Purchase Agreement dated May 29, 1992 between the
Registrant and Bull HN Information Systems Inc.
10.7 Agreement of Amendment dated as of March 15, 1996 between the
Registrant and Bull HN Information Systems Inc.
10.8 Note and Warrant Purchase Agreement dated as of May 30, 1995
between the Registrant and Massachusetts Capital Resource Company.
10.9 Common Stock Purchase Warrant, due May 30, 1995.
10.10 Secured Subordinated Note due 2002, dated May 30, 1995.
10.11 Voting Agreement dated as of May 30, 1995 among the Registrant,
Dominic K. Chan and Massachusetts Capital Resource Company.
10.12 Security Agreement dated as of May 30, 1995 between the Registrant
and Massachusetts Capital Resource Company.
10.13 Series A Convertible Preferred Stock and Class A Common Stock
Purchase Agreement dated as of March 15, 1996 among the Registrant
and the purchasers named in Schedule I thereto.
10.14 Registration Rights Agreement dated as of March 15, 1996, as
amended, among the Registrant and the stockholders listed on the
signature pages thereto.
10.15 Stock Restriction Agreement dated as of March 15, 1996, as
amended, among the Registrant, Dominic K. Chan and Marsha C. Chan
and the stockholders listed on the signature pages thereto.
10.16 Voting Agreement dated as of March 15, 1996 among the Registrant
and the stockholders listed in the signature pages thereto.
10.17 Stock Option Agreement dated as of March 15, 1996 among the
Registrant, Dominic K. Chan and Marsha C. Chan.
10.18 Non-Competition Agreement dated as of March 15, 1996 between the
Registrant and Dominic K. Chan.
10.19 Series B Convertible Preferred Stock Purchase Agreement dated as
of October 28, 1996 among the Registrant and the purchasers named
in Schedule I thereto.
10.20 Employment Agreement dated as of December 30, 1996 between the
Registrant and Douglas A. Catalano.
10.21 Employment Agreement dated as of January 27, 1997 between the
Registrant and Robert D. Savoia.
10.22 Letter Agreement dated as of August 15, 1996 between the
Registrant and Leonard Miller.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+10.23 Master Software Services Agreement dated as of February 3, 1992
between the Registrant and Bull HN Information Systems Inc.
+10.24 License Agreement dated as of July 29, 1996 between the Registrant
and Bull HN Information Inc.
+10.25 Master License Agreement dated as of October 21, 1996, as amended,
between the Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
+10.26 Engineering Consultant Services Agreement, as amended, between
Stratus Computer, Inc. and the Registrant, dated November 30,
1993.
10.27 Letter Agreement dated September 6, 1996 between the Registrant
and Fleet National Bank.
10.28 Promissory Note between the Registrant and Fleet National Bank in
the amount of $3,500,000, dated September 6, 1996.
10.29 Promissory Note between the Registrant and Fleet National Bank in
the amount of $675,000, dated September 6, 1996.
10.30 Promissory Note between the Registrant and Fleet National Bank in
the amount of $825,000, dated September 6, 1996.
10.31 Inventory, Accounts Receivable and Intangibles Security Agreement
between the Registrant and Fleet National Bank, dated September 6,
1996.
10.32 Supplemental Security Agreement between the Registrant and Fleet
National Bank, dated September 6, 1996.
10.33 Security Agreement (Trademarks) between the Registrant and Fleet
National Bank, dated September 6, 1996.
10.34 Security Agreement (Patents) between the Registrant and Fleet
National Bank, dated September 6, 1996.
10.35 Subordination Agreement between Massachusetts Capital Resource
Company and Fleet National Bank, dated September 6, 1996.
+10.36 License and Alliance Agreement dated as of May 1, 1996, as
amended, between the Registrant and CSC Consulting, Inc.
10.37 Agreement and Plan of Merger among the Registrant, Vista
Technologies Incorporated and its stockholders, dated January 29,
1996.
+10.38 Letter of Intent dated May 9, 1997 between the Registrant and
VIASOFT, Inc.
11 Computation of earnings per common share.
21 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5).
24 Power of Attorney (included on page II-7).
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
2
<PAGE>
EXHIBIT 1
Draft of May 9, 1997
2,900,000 Shares
Peritus Software Services, Inc.
Common Stock
Underwriting Agreement
dated __________________, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. Representations and Warranties........................................................................2
A. Representations and Warranties of the Company and the Selling Shareholders..................................2
B. Representations and Warranties of the Selling Shareholders.................................................9
Section 2. Purchase, Sale and Delivery of the Common Shares.....................................................11
Section 3. Additional Covenants.................................................................................14
A. Covenants of the Company...................................................................................14
B. Covenants of the Selling Shareholders......................................................................16
Section 4. Payment of Expenses..................................................................................17
Section 5. Conditions of the Obligations of the Underwriters....................................................18
Section 6. Reimbursement of Underwriters' Expenses..............................................................21
Section 7. Effectiveness of this Agreement......................................................................21
Section 8. Indemnification......................................................................................22
Section 9. Contribution.........................................................................................25
Section 10. Default of One or More of the Several Underwriters..................................................26
Section 11. Termination of this Agreement.......................................................................27
Section 12. Representations and Indemnities to Survive Delivery.................................................28
Section 13. Notices.............................................................................................28
Section 14. Successors..........................................................................................29
Section 15. Partial Unenforceability............................................................................29
Section 16. Governing Law Provisions............................................................................29
Section 17. Failure of One or More of the Selling Shareholders to Sell and Deliver Common Shares................30
Section 18. General Provisions..................................................................................30
</TABLE>
-i-
<PAGE>
Underwriting Agreement
[Date]
MONTGOMERY SECURITIES
WESSELS, ARNOLD & HENDERSON
H.C. WAINWRIGHT & CO., INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
Introductory. Peritus Software Services, Inc., a Massachusetts
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in Schedule A (the "Underwriters") an aggregate of 2,800,000
----------
shares of its Common Stock, par value $.01 per share (the "Common Stock"); and
one of the Shareholder of the Company named in Schedule B (the "Primary Selling
----------
Shareholder") proposes to sell to the Underwriters an aggregate of 100,000
shares of Common Stock. The 2,800,000 shares of Common Stock to be sold by the
Company and the 100,000 shares of Common Stock to be sold by the Primary Selling
Shareholder are collectively called the "Firm Common Shares." In addition, the
Selling Shareholders named in Schedule B (collectively, together with the
Primary Selling Shareholder, the "Selling Shareholders") have severally granted
to the Underwriters an option to purchase up to an additional 435,000 shares
(the "Optional Common Shares") of Common Stock, as provided in Section 2, each
Selling Shareholder selling up to the amount set forth opposite such Selling
Shareholder's name in Schedule B. The Firm Common Shares and, if and to the
extent such option is exercised, the Optional Common Shares are collectively
called the "Common Shares." Montgomery Securities, Wessels, Arnold & Henderson
and H.C. Wainwright & Co., Inc. have agreed to act as representative of the
several Underwriters (in such capacity, the "Representatives") in connection
with the offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[_____]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement." Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement," and from and
<PAGE>
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
however, if the Company has, with the consent of Montgomery Securities, elected
to rely upon Rule 434 Under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated [____] (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together the applicable term sheet (the "Term Sheet")
prepared and filed by the Company with the Commission under Rules 434 and 424(b)
under the Securities Act and all references in this Agreement to the date of the
Prospectus shall mean the date of the Term Sheet. All references in this
Agreement to the Registration Statement, the Rule 462(b) Registration Statement,
a preliminary prospectus, the Prospectus or the Term Sheet, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
Section 1. Representations and Warranties.
A. Representations and Warranties of the Company and the Selling
Shareholders. Each of the Company and each of the Selling Shareholders hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common Shares.
Each of the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
-2-
<PAGE>
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each of the Representatives one complete manually signed copy of
the Registration Statement and of each consent and certificate of experts filed
as a part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement, and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Except as otherwise, disclosed in the
Prospectus, subsequent to the respective dates as of which information is given
in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the
ordinary course of business, of the Company and its subsidiaries, considered as
one entity any such change is called a "Material Adverse Change"); (ii) the
Company and its subsidiaries, considered as one entity, have not incurred any
material liability or obligation, indirect, direct or contingent, not in
-3-
<PAGE>
the ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or,
except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by the
Company or any of its subsidiaries of any class of capital stock.
(h) Independent Accountants. Price Waterhouse LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) [and supporting schedules]
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public or certified public accountants as
required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. [The supporting
schedules included in the Registration Statement present fairly, the information
required to be stated therein.] Such financial statements [and supporting
schedules] have been prepared in conformity with generally accepted accounting
principles as applied in the United States applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus tinder the captions "Prospectus Summary--Summary
Selected Financial Data," "Selected Financial Data" and "Capitalization" fairly
present the information set forth therein on a basis consistent with that of the
audited financial statements contained in the Registration Statement.
(j) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and, in the case of the Company, to enter into
and perform its obligations under this Agreement. Each of the Company and each
subsidiary is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except for such jurisdictions where the failure to so
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Change. All of the issued and outstanding capital
stock of each subsidiary has been duly authorized and validly issued, is fully
paid and nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or claim. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 22 to the Registration Statement.
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption
-4-
<PAGE>
"Capitalization" (other than for subsequent issuances, if any, pursuant to
employee benefit plans described in the Prospectus or upon exercise of
outstanding options or warrants described in the Prospectus). The Common Stock
(including the Common Shares) conforms in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding shares of Common Stock (including the shares of Common Stock owned
by Selling Shareholders) have been duly authorized and validly issued, are fully
paid and nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding shares of Common Stock were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities convertible
into or exchangeable or exercisable for, any capital stock of the Company or any
of its subsidiaries other than those accurately described in the Prospectus. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default (or,
with the giving of notice or lapse of time, would be in default) ("Default")
under any indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound (including,
without limitation, the Company's [MCRC Note] or the related purchase and
security agreements and the Revolving Credit Facility with Fleet Bank, N.A.), or
to which any of the property or assets of the Company or any of its subsidiaries
is subject (each, an "Existing Instrument"), except for such Defaults as would
not, individually or in the aggregate, result in a Material Adverse Change. The
Company's execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by the by-laws of the Company or
any subsidiary, (ii) will not conflict with or constitute a breach of, or
Default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other part to, any
Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been obtained or
made by the Company and
-5-
<PAGE>
are in full force and effect under the Securities Act, applicable state
securities or blue sky laws and from the National Association of Securities
Dealers, Inc. (the "NASD").
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any of
its subsidiaries, (ii) which has as the subject thereof any officer or director
of, or property owned or leased by, the Company or any of its subsidiaries or
(iii) relating to environmental or discrimination matters, where in any such
case (A) there is a reasonable possibility that such action, suit or proceeding
might be determined adversely to the Company or such subsidiary and (B) any such
action, suit or proceeding, if so determined adversely, would reasonably be
expected to result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by this Agreement. No material
labor dispute with the employees of the Company or any of its subsidiaries
exists or, to the best of the Company's knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company and its subsidiaries own
or possess sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their businesses
as now conducted; and the expected expiration of any of such Intellectual
Property Rights would not result in a Material Adverse Change. Neither the
Company nor any of its subsidiaries has received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Change. The Company has duly and properly filed or
caused to be filed with the United States Patent and Trademark Office (the
"PTO") and applicable foreign and international patent authorities all patent
applications described or referred to in the Prospectus, and believes it has
complied with the PTO's duty of candor and disclosure for each of the United
States patent and patent applications described or referred to in the
Prospectus; the Company is unaware of any facts which would preclude the grant
of a patent from each of the patent applications described or referred to in the
Prospectus; and the Company has no knowledge of any facts which would preclude
it from having clear title to its patent applications referenced in the
Registration Statement. Except as disclosed in the Prospectus, the Company is
not aware of the granting of any patents to third parties or the filing of
patent applications by third parties or any other rights of third parties to any
of the Intellectual Property Rights.
(p) All Necessary Permits, etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary,
to conduct their respective businesses, and neither the Company nor any
subsidiary has received any notice of proceedings relating to the revocation or
modification of, or noncompliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(q) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned in
the financial statements
-6-
<PAGE>
referred to in Section 1(A)(i) above (or elsewhere in the Prospectus), in each
case free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere with
the use made or proposed to be made of such property by the Company or such
subsidiary. The real property, improvements, equipment and personal property
held under lease by the Company or any subsidiary are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company, or such
subsidiary.
(r) Tax law Compliance. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes required to be paid by any of them and, if due
and payable, any related or similar assessment, fine or penalty levied against
any of them. The Company has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section 1(A)(i) above in respect
of all federal, state and foreign income and franchise taxes for all periods as
to which the tax liability of the Company or any of its consolidated
subsidiaries has not been finally determined.
(s) Company Not an "Investment Company." The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt of
payment for the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act and will conduct its business in a manner so
that it will not become subject to the Investment Company Act.
(t) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction. acts of vandalism and
earthquakes, The Company has no reason to believe that it or any subsidiary will
not be able (i) to renew its existing insurance coverage as and when such
policies expire or (ii) to obtain comparable coverage from similar institutions
as may be necessary or appropriate to conduct its business as now conducted and
at a cost that would not result in a Material Adverse Change. Neither of the
Company nor any subsidiary has been denied any insurance coverage which it has
sought or for which it has applied.
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock. to facilitate the sale or resale of the Common
Shares.
(v) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
-7-
<PAGE>
(w) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee of the Company or any subsidiary, has made any contribution or other
payment to any official of, or candidate for, any federal, state or foreign
office in violation of any law or of the character required to be disclosed in
the Prospectus.
(x) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles as applied in the United States and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(y) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No "reportable
event" (as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401 (a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
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<PAGE>
B. Representations and Warranties of the Selling Shareholders. In
addition to the representations, warranties and covenants set forth in Section
1(A), each Selling Shareholder represents, warrants and covenants to each
Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling Shareholder
and is a valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Shareholder and Peritus Software
Services, Inc., as custodian (the "Custodian"), relating to the deposit of the
Common Shares to be sold by such Selling Shareholder (the "Custody Agreement")
and (ii) Power of Attorney appointing certain individuals named therein as such
Selling Shareholder's attorneys-in-fact (each, an "Attorney-in-Fact") to the
extent set forth therein relating to the transactions contemplated hereby and by
the Prospectus (the "Power of Attorney"), of such Selling Shareholder has been
duly authorized, executed and delivered by such Selling Shareholder and is a
valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except as rights to indemnification thereunder may be
limited by applicable law and except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(c) Title to Common Shares to be Sold, All Authorizations Obtained.
Such Selling Shareholder has, and on the First Closing Date and the Second
Closing Date (as defined below) will have, good and valid title to all of the
Common Shares which may be sold by such Selling Shareholder pursuant to this
Agreement on such date and the legal right and power, and all authorizations and
approvals required by law [and under its charter or by-laws,] [partnership
agreement,] [trust agreement] [or other organizational documents] to enter into
this Agreement and its Custody Agreement and Power of Attorney, to sell,
transfer and deliver all of the Common Shares which may be sold by such Selling
Shareholder pursuant to this Agreement and to comply with its other obligations
hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the Common
Shares which are sold by such Selling Shareholder pursuant to this Agreement
will pass good and valid title to such Common Shares, free and clear of any
security interest, mortgage, pledge, lien, encumbrance or other claim.
(e) Non-Contravention; No Further Authorizations or Approvals Required.
The execution and delivery by such Selling Shareholder of, and the performance
by such Selling Shareholder of its obligations under, this Agreement, the
Custody Agreement and the Power of Attorney will not contravene or conflict
with, result in a breach of, or constitute a Default under, or require the
consent of any other party to, the charter or by-laws, [partnership agreement,]
[trust
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<PAGE>
agreement] or other organizational documents of such Selling Shareholder or any
other agreement or instrument to which such Selling Shareholder is a party or by
which it is bound or under which it is entitled to any right or benefit, any
provision of applicable law or any judgment, order, decree or regulation
applicable to such Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction over
such Selling Shareholder. No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental authority or
agency, is required for the consummation by such Selling Shareholder of the
transactions contemplated in this Agreement, except such as have been obtained
or made and are in full force and effect under the Securities Act, applicable
state securities or blue sky laws and from the NASD.
(f) No Registration or Other Similar Rights. Such Selling Shareholder
does not have any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement, except for
such rights as are described in the Prospectus under "Shares Eligible for Future
Sale."
(g) No Further Consents, etc. Except for the (i) exercise by such
Selling Shareholder of certain registration rights pursuant to the Registration
Rights Agreement dated as of March 15, 1996 (which registration rights have been
duly exercised pursuant thereto), (ii) consent of such Selling Shareholder to
the respective number of Common Shares to be sold by all of the Selling
Shareholders pursuant to this Agreement and (iii) waiver by certain other
holders of Common stock of certain registration rights pursuant to such
Registration Rights Agreement, no consent, approval or waiver is required under
any instrument or agreement to which such Selling Shareholder is a party or by
which it is bound or under which it is entitled to any right or benefit, in
connection with the offering, sale, or purchase by the Underwriters of any of
the Common Shares which may be sold by such Selling Shareholder under this
Agreement or the consummation by such Selling Shareholder of any of the other
transactions contemplated hereby.
(h) Disclosure Made Such Selling Shareholder in the Prospectus. All
information furnished by or on behalf of such Selling Shareholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date and the Second Closing Date will be, true, correct, and
complete in all material respects, and does not, and on the First Closing Date
and the Second Closing Date will not, contain any untrue statement of a material
fact or omit to state any material fact necessary to make such information not
misleading. Such Selling Shareholder confirms as accurate the number of shares
of Common Stock set forth opposite such Selling Shareholder's name in the
Prospectus under the caption "Principal and Selling Shareholders" (both prior to
and after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling Shareholder
has not taken and will not take, directly or indirectly, any action designed to
or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.
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<PAGE>
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
Section 2. Purchase, Sale and Delivery of the Common Shares.
The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
2,800,000 Firm Common Shares and (ii) the Primary Selling Shareholder agrees to
sell to the several Underwriters an aggregate of 100,000 Firm Common Shares. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company and
the Primary Selling Shareholder the respective number of Firm Common Shares set
forth opposite their names on Schedule A. The purchase price per Firm Common
----------
Share to be paid by the several Underwriters to the Company and the Primary
Selling Shareholder shall be $[ ] per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on [ ], or such other time and
date not later than 10:30 a.m. San Francisco time, on [ ] as the Representatives
shall designate by notice to the Company (the time and date of such closing are
called the "First Closing Date"). The Company and the Primary Selling
Shareholder hereby acknowledge that circumstances under which the
Representatives may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any determination by
the Company, the Primary Selling Shareholder or the Representatives to
recirculate to the public copies of an amended or supplemented Prospectus or a
delay as contemplated by the provisions of Section 10.
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Selling
Shareholders hereby grant an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 435,000 Optional Common Shares
from the Selling Shareholders at the purchase price per share to be paid by the
Underwriters for the Firm Common Shares. The option granted hereunder is for use
by the Underwriters solely in covering any over-allotments in connection with
the sale and distribution of the Firm Common Shares. The option granted
hereunder may be exercised at any time (but not more than once) upon notice by
the Representatives the Selling Shareholders (with a copy to the Company), which
notice may be given at any time within 30 days from the date of this Agreement.
Such notice shall set forth (i) the aggregate number of Optional Common Shares
as to which the Underwriters are exercising the option, (ii) the names and
denominations in which the certificates for the Optional Common Shares are to be
registered and (iii) the time, date and place at which such certificates will be
delivered (which time and date may be simultaneous with, but not earlier than,
the First Closing Date; and in such case the "First Closing Date" shall refer to
the time and date of delivery of certificates for the Firm Common Shares and the
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Optional Common Shares). Such time and date of delivery, if subsequent to the
First Closing Date, is called the "Second Closing Date" and shall be determined
by the Representatives and shall not be earlier than three nor later than five
full business days after delivery of such notice of exercise. If any Optional
Common Shares are to be purchased, (a) each Underwriter agrees, severally and
not jointly, to purchase the number of Optional Common Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Optional Common Shares to
be purchased as the number of Firm Common Shares set forth on Schedule A
----------
opposite the name of such Underwriter bears to the total number of Firm Common
Shares, (b) each Selling Shareholder agrees, severally and not jointly, to sell
up to the number of Optional Common Shares set forth in Schedule B opposite the
name of such Selling Shareholder and (c) the Underwriters and Selling
Shareholders agree that if any Optional Common Shares are to be purchased, the
Optional Common Shares to be sold by the Primary Selling Shareholder shall be
purchased first and if after all such Optional Common Shares have been
purchased, additional Optional Common Shares are to be purchased ("Additional
Optional Common Shares"), the remaining Selling Shareholders shall sell the
number of Optional Common Shares (subject to adjustments to eliminate fractional
shares as the Representative may determine) that bears the same proportion to
the total number of Additional Optional Common Shares to be sold as the number
of Optional Common Shares set forth in Schedule B opposite the name of such
----------
remaining Selling Shareholder bears to the total number of Additional Optional
Common Shares. The Representatives may cancel the option at any time prior to
its expiration by giving written notice of such cancellation to the Company and
the Selling Shareholders.
Public Offering of the Common Shares. The Representatives hereby advise
the Company and the Selling Shareholders that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has been declared effective as the Representatives,
in their sole judgment, have determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares to be sold
by the Company shall be made at the First Closing Date (and, if applicable, at
the Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Common Shares to be sold by the Selling
Shareholder shall be made at the First Closing Date and, if applicable, at the
Second Closing Date, by wire transfer of immediately available funds to the
order of the Custodian.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Montgomery Securities, individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
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<PAGE>
Each Selling Shareholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by such Selling Shareholder, to
the several Underwriters, or otherwise in connection with the performance of
such Selling Shareholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to such
Selling Shareholder hereunder and to hold such amounts for the account of such
Selling Shareholder with the Custodian under the Custody Agreement.
Delivery of the Common Shares. The Company and the Selling Shareholders
shall deliver, or cause to be delivered, to the Representatives for the accounts
of the several Underwriters certificates for the Firm Common Shares to be sold
by them at the First Closing Date, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The Company shall also deliver, or cause, to be delivered, to the
Representatives for the accounts of the several Underwriters certificates for
the Optional Common Shares the Underwriters have agreed to purchase at the First
Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The certificates for the Common Shares
shall be in definitive form and registered in such names and denominations as
the Representatives shall have requested at least two full business days prior
to the First Closing Date (or the Second Closing Date, as the case may be) and
shall be made available for inspection on the business day preceding the First
Closing Date (or the Second Closing Date, as the case may be) at a location in
New York City as the Representatives may designate. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
Section 3. Additional Covenants.
A. Covenants of the Company. The Company further covenants and agrees
with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as `in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or supplement,
and the Company shall not file any such proposed amendment or supplement to
which the Representatives reasonably object.
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<PAGE>
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the receipt
of any comments of, or requests for additional or supplemental information from,
the Commission, (ii) of the time and date of any filing of any post-effective
amendment to the Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time, and date that any
post-effective amendment to the Registration Statement becomes effective and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any proceedings to remove, suspend or
terminate from listing or quotation the Common Stock from any securities
exchange upon which the it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any of
such purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order at the
earliest possible moment. Additionally, the Company agrees that it shall comply
with the provisions of Rules 424(b), 430A and 434, as applicable, under the
Securities Act and will use its reasonable efforts to confirm that any filings
made by the Company under such Rule 424(b) were received in a timely manner by
the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall occur or
condition exist as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with law,
the Company agrees to promptly prepare (subject to Section 3(A)(a) hereof), file
with the Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any amendments
and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
or state securities or blue sky laws or Canadian provincial Securities laws of
those jurisdictions designated by the Representatives, shall comply with such
laws and shall continue such qualifications, registrations and exemptions in
effect so long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Representatives
promptly of the
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<PAGE>
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any jurisdiction
or any initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification, registration
or exemption, the Company shall use its best efforts to obtain the withdrawal
thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [____]that satisfies the provisions of Section 11(a) of the Securities
Act.
(i) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act of 1934 (the "Exchange Act"). Additionally, the Company shall file
with the Commission all reports on Form SR as may be required under Rule 463
under the Securities Act.
(j) Agreement Not To Offer or Sell Additional Securities. During the
period of 180 days following the date of the Prospectus, the Company will not,
without the prior written consent of Montgomery Securities (which consent may be
withheld at the sole discretion of Montgomery Securities), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge, transfer
or establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or
announce the offering of, or file any registration statement under the
Securities Act in respect of, any shares of Common Stock, options or warrants to
acquire shares of the Common Stock or securities exchangeable or exercisable for
or convertible into shares of Common Stock (other than as contemplated by this
Agreement with respect to the Common Shares); provided, however, that the
Company may issue shares of its Common Stock or options to purchase its Common
Stock, or Common Stock upon exercise of options, pursuant to any stock option,
stock bonus or other stock plan or arrangement described in the Prospectus, but
only if the holders of such shares, options, or shares issued upon exercise of
such options, agree in writing not to sell, offer, dispose of or otherwise
transfer any such shares or options during such 180 day period without the prior
written consent of Montgomery Securities (which consent may be withheld at the
sole discretion of the Montgomery Securities).
(k) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives at Two
International Place, Boston, MA 02110 Attention: M. Benjamin Howe. (i) as soon
as practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the
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<PAGE>
close of such fiscal year and statements of income, shareholders' equity and
cash flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as practicable
after the filing thereof, copies of each proxy statement, Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any securities exchange;
and (iii) as soon as available, copies of any report or communication of the
Company mailed generally to holders of its capital stock.
(l) During a period of ninety (90) days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under any option plan, stock purchase plan or other stock or
option plan.
B. Covenants of the Selling Shareholders. Each Selling Shareholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Shareholder will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock, or securities exchangeable or exercisable for or convertible into shares
of Common Stock currently or hereafter owned either of record or beneficially
(as defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by
the undersigned, or publicly announce the undersigned's intention to do any of
the foregoing, for a period commencing on the date hereof and continuing through
the close of trading on the date 180 days after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representatives
prior to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Shareholder is a non-United States
person) or Form W-9 (if the Selling Shareholder is a United States Person).
Montgomery Securities, on behalf of the several Underwriters, may, in
its sole discretion, waive in writing the performance by the Company or any
Selling Shareholder or any one or more of the foregoing covenants or extend the
time for their performance.
Section 4. Payment of Expenses. The Company and the Selling
Shareholders, jointly and severally, agree to pay in such proportions as they
may agree upon among themselves all costs, fees and expenses incurred in
connection with the performance of their obligations hereunder and in connection
with the transactions contemplated hereby, including without limitation (i) all
expenses incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs), (ii) all fees and expenses of the registrar
and transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and
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<PAGE>
distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), each preliminary
prospectus and the Prospectus, and all amendments and supplements thereto, and
this Agreement, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the state securities or blue sky
laws or the provincial securities laws of Canada, and, if requested by the
Representatives, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters or such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with listing the Common Shares on the Nasdaq National Market, and
(ix) all other fees, costs and expenses referred to in Part II of the
Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.
The Selling Shareholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Shareholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Shareholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Shareholders, on the other hand.
Section 5. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholders set forth in Section 1 hereof as of the date hereof and
as of the First Closing Date as though then made and, with respect to the
Optional Common Shares, as of the Second Closing Date as though then made, to
the timely performance by the Company and the Selling Shareholders of their
respective covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Price Waterhouse LLP, independent
public or certified public accountants for the Company, a letter dated the date
hereof addressed to the Underwriters, in form and substance satisfactory to the
Representatives, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered according
to Statement of
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Auditing Standards No. 72 (or any successor bulletin), with respect to the
audited and unaudited financial statements and certain financial information
contained in the Registration Statement and the Prospectus (and the
Representatives shall have received an additional [____] conformed copies of
such accountants' letter for each of the several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the Securities
Act) in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required by such Rule
430A, and such post-effective amendment shall have become effective; or, if the
Company elected to rely upon Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed a Term Sheet with
the Commission in the manner and within the time period required by such Rule
424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect and
no proceedings for such purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the period
from and after the date of this Agreement and prior to the First Closing Date
and, with respect to the Optional Common Shares, the Second Closing Date:
(i) in the judgment of the Representatives there shall not have
occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company or any of
its subsidiaries by any "nationally recognized statistical rating organization"
as such term is defined for purposes of Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of Hale and Dorr LLP, counsel for the Company, dated as of
such Closing Date, the form of which is attached as Exhibit A (and the
---------
Representatives shall have received an additional [___] conformed copies of such
counsel's legal opinion for each of the several Underwriters).
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<PAGE>
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
such opinion or opinions of Testa, Hurwitz & Thibeault, LLP, counsel for the
Underwriters, with respect to the incorporation of the Company, the sufficiency
of all corporate proceedings and other legal matters relating to this Agreement,
the validity of the Common Shares, the Registration Statement and the Prospectus
and other related matters as the Underwriters may reasonably require, and the
Company and the Selling Shareholders shall have furnished to such counsel such
documents and shall have exhibited to them such papers and records as they may
reasonably request for the purpose of enabling them to pass upon such matters
(and the Representatives shall have received an additional [___] conformed
copies of such counsel's legal opinion for each of the several Underwriters).
(f) Officer's Certificate. On each of the First Closing Date and
the Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect
that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not occurred any Material
Adverse Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1[(A)] of this Agreement are true and correct with
the same force and effect as though expressly made on and as of such Closing
Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received from Price
Waterhouse LLP, independent public or certified public accountants for the
Company, a letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional [___] conformed copies of such accountants' letter for
each of the several Underwriters).
(h) Opinion of Counsel for the Selling Shareholders. On each of
the First Closing Date and the Second Closing Date the Representatives shall
have received the favorable opinion of Hale and Dorr, counsel for the Selling
Shareholders, dated as of such Closing Date, the form of which is attached as
Exhibit B (and the Representatives shall have received an additional [___]
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conformed copies of such counsel's legal opinion for each of the several
Underwriters).
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<PAGE>
(i) Selling Shareholders' Certificate. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
a written certificate executed by the Attorney-in-Fact of each Selling
Shareholder, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such
Selling Shareholder set forth in Section 1 of this Agreement are true and
correct with the same force and effect as though expressly made by such Selling
Shareholder on and as of such Closing Date; and
(ii) such Selling Shareholder has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date.
(j) Selling Shareholders' Documents. On the date hereof, the
Company and the Selling Shareholders shall have furnished for review by the
Representatives copies of the Powers of Attorney and Custody Agreements executed
by each of the Selling Shareholders and such further information, certificates
and documents as the Representatives may reasonably request.
(k) Lock-Up Agreement from Certain Shareholders of the Company
Other Than Selling Shareholders. On the date hereof, the Company shall have
furnished to the Representatives an agreement in the form of Exhibit C hereto
from each director, officer and each beneficial owner of at least 10,000 shares
of Common Stock (as defined and determined according to Rule 13d-3 under the
Exchange Act, except that a one hundred eighty day period shall be used rather
than the sixty day period set forth therein, and such agreement shall be in full
force and effect on each of the First Closing Date and the Second Closing Date.
(l) Additional Documents. On or before each of the First Closing
Date and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the Representatives and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Shareholders at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement
is terminated by the Representatives pursuant to Section 5, Section 7, Section
10, Section 11 or Section 17, or if the sale to the Underwriters of the Common
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or the Selling Shareholders to
perform any agreement herein or to comply with any provision
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<PAGE>
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
Section 7. Effectiveness of this Agreement.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company or the Selling
Shareholders to any Underwriter, except that the Company and the Selling
Shareholders shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company or the Selling Shareholders, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
Section 8. Indemnification.
(a) Indemnification of the Underwriters. Each of the Company and
each of the Selling Shareholders, jointly and severally, agrees to indemnify and
hold harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company or the Selling Shareholders
contained herein;
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<PAGE>
or (iv) in whole or in part upon any failure of the Company or the Selling
Shareholders to perform their respective obligations hereunder or under law; or
(v) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Common Stock
or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of or
based upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Montgomery Securities) as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company and the Selling Shareholders by the
Representatives expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or expense
purchased Common Shares, or any person controlling such Underwriter, if copies
of the Prospectus were timely delivered to the Underwriter pursuant to Section 2
and a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
the Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expanse. The indemnity agreement set forth in this Section
8(a) shall be in addition to any liabilities that the Company and the Selling
Shareholders may otherwise have.
(b) Indemnification of the Company, its Directors and Officers and
the Selling Shareholders. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement, the Selling Shareholders and
each person, if any, who controls the Company or any Selling Shareholder within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer, Selling Shareholder or controlling person may become subject,
under the Securities Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement if effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is
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<PAGE>
based upon any untrue or alleged untrue statement of a material fact contained
in the Registrant Statement, nay preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or arises out of or is based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company and the Selling Shareholders by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer [, Selling Shareholder] or controlling person for any
legal and other expense reasonably incurred by the Company, or any such
director, officer, Selling Shareholder or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. Each of the Company and each of the
Selling Shareholders, hereby acknowledges that the only information that the
Underwriters have furnished to the Company and the Selling Shareholders
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth (A) as the last [two] paragraphs on the inside front cover page of the
Prospectus concerning stabilization by the Underwriters and (B) in the table in
the first paragraph and as the second paragraph under the caption "Underwriting"
in the Prospectus; and the Underwriters confirm that such statements are
correct. The indemnity agreement set forth in this Section 8(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defense available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the
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indemnifying party to such indemnified party of such indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (Montgomery Securities in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement of judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
8(c) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
Section 9. Contribution. If the indemnification provided for in Section
8 is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders, on the
one hand, and the Underwriters, on the other hand, from the offering of the
Common Shares pursuant to this Agreement or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
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clause (i) above but also the relative fault of the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, in
connection with the statement or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, in
connection with the offering of the Common Shares pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Common Shares pursuant to this Agreement
(before deducting expenses) received by the Company and the Selling
Shareholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if
Rule 434 under the Securities Act is used, the corresponding location on the
Term Sheet) bear to the aggregate initial public offering price of the Common
Shares as set forth on such cover. The relative fault of the Company and the
Selling Shareholders, on the one hand, and the Underwriters, on the other hand,
shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact or any such inaccurate or alleged inaccurate
representations or warranty relates to information supplied by the Company or
the Selling Shareholders, on the one hand, or the Underwriters, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement of omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9,
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<PAGE>
each officer and employee of an Underwriter and each person, if any, who
controls an Underwriter within the meaning of the Securities Act and the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company with
the meaning of the Securities Act and the Exchange Act shall have the same
rights to contribution as the Company.
Section 10. Default of One or More of the Several Underwriters. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Sharers are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination. In
any such case either the Representatives or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 11. Termination of this Agreement. Prior to the First Closing
Date this Agreement may be terminated by the Representatives by notice given to
the Company and the Selling Shareholders if at any time (i) trading or quotation
in any of the Company's securities shall have been suspended or limited by the
Commission or by the Nasdaq Stock Market, or trading in securities generally on
either the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission of the NASD;
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(ii) a general banking moratorium shall have been declared by any of federal,
New York or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in the United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company or the
Selling Shareholders to any Underwriter, except that the Company and the Selling
Shareholder shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Section 4 and 6 hereof, (b) any Underwriter to
the Company or any Selling Shareholder, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
Section 12. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person,[or the Selling Shareholders,]
as the case may be, and will survive delivery of and payment for the Common
Shares sold hereunder and any termination of this Agreement.
Section 13. Notices. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5558
Attention: Richard A. Smith
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<PAGE>
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Peritus Software Services, Inc.
304 Concord Road
Billerica, MA 01821
(508) 670-0800
Facsimile: (508) 670-0800
Attention:
If to the Selling Shareholders:
Peritus Software Services, Inc., as Custodian
304 Concord Road
Billerica, MA 01821
(508) 670-0800
Facsimile: (508) 670-0800
Any party hereto may change the address for receipt of communications by
giving written notice to the others.
Section 14. Successors. This Agreement will inure to the benefit of and
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
Section 15. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to invalid or unenforceable, there shall be deemed to
be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
Section 16. (a) Governing Law Provisions. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
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LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco
(collectively, the "Specified Courts"), and each party irrevocably submits to
the exclusive jurisdiction (except for proceedings instituted in regard to the
enforcement of a judgment of any such court (a "Related Judgment"), as to which
such jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum.
Section 17. Failure of One or More of the Selling Shareholders to Sell
and Deliver Common Shares. If one or more of the Selling Shareholders shall fail
to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Shareholder at the First Closing Date pursuant to this
Agreement, then the Underwriters may at their option, by written notice from the
Representatives to the Company and the Selling Shareholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8, and 9 hereof, the Company or the
Selling Shareholders, or (ii) purchase the shares which the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Shareholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Shareholder pursuant to this Agreement at the First Closing Date, then
the Underwriters shall have the right, by written notice from the
Representatives to the Company and the Selling Shareholders, to postpone the
First Closing Date, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and Prospectus or any
other documents or arrangement may be effected.
Section 18. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
-29-
<PAGE>
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and contribution provisions of Section
9, and is fully informed regarding said provisions. Each of the parties hereto
further acknowledges that the provisions of Sections 8 and 9 hereto fairly
allocate the risks in light of the ability of the parties to investigate the
Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
-30-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
PERITUS SOFTWARE SERVICES, INC.
By:
----------------------------------
[Title]
SELLING SHAREHOLDERS
By:
----------------------------------
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
WESSELS, ARNOLD & HENDERSON
H.C. WAINWRIGHT & CO., INC.
Acting as Representatives of the
several Underwriters named in the
attached Schedule A.
By MONTGOMERY SECURITIES
By:
-31-
<PAGE>
EXHIBIT A
The final opinion in draft form will be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section
5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Massachusetts.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason or the
ownership or leasing or property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change.
(iv) Each subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and, to the best knowledge of such counsel,
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change.
(v) Except as described in the Prospectus, all of the issued
and outstanding capital stock of each such significant subsidiary has
been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear or any security interest, mortgage,
pledge, lien, encumbrance or, to the best knowledge of such counsel,
any pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conform to the descriptions
thereof set forth in the Prospectus. All of the outstanding shares of
Common Stock (including the shares of
- --------------------
-32-
<PAGE>
Common Stock owned by Selling Shareholders) have been duly authorized
and validly issued, are fully paid and nonassessable and, to the best
of such counsel's knowledge, have been issued in compliance with the
registration and qualification requirements of federal and state
securities laws. The form of certificate used to evidence the Common
Stock is in due and proper form and complies with all applicable
requirements of the charter and by-laws of the Company and Business
Corporation Laws of the Commonwealth of Massachusetts. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately said fairly presents
the information required to be shown with respect to such plans,
arrangements, options and rights.
(vii) No Shareholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the Business
Corporation Laws of the Commonwealth of Massachusetts or (ii) to the
best knowledge of such counsel, otherwise, except such rights that have
been waived.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(ix) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale
pursuant to the Underwriting Agreement and, when issued and delivered
by the Company pursuant to the Underwriting Agreement against payment
of the consideration set forth therein, will be validly issued, fully
paid and nonassessable.
(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if
any, has been issued under the Securities Act and no proceedings for
such purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act
has been made in the manner and within the time period required by such
Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or
supplement to the Registration Statement and the Prospectus, as of
their respective effective or issue dates (other than the financial
statements and supporting schedules included therein or in exhibits to
or
-33-
<PAGE>
excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the
applicable requirements of the Securities Act.
(xii) The Common Shares have been approved for listing on the
Nasdaq National Market.
(xiii) The statements (i) in the Prospectus under the captions
"Risk Factors," "Description of Capital Stock," "Management's
Discussion and Analysis and Results of Operations--Liquidity,"
"Business--Legal Proceedings," "Business--Intellectual Property,"
"Certain Transactions," "Shares Eligible for Future Sale,"
"Management--Employment Agreements," and "Underwriting" and (ii) in
Item 14 and Item 15 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters, the
Company's charter or by-law provisions, documents or legal proceedings,
or legal conclusions, has been reviewed by such counsel and fairly
present and summarize, in all material respects, the matters referred
to therein.
(xiv) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings pending or
threatened which are required to be disclosed in the Registration
Statement, other than those disclosed therein.
(xv) To the best knowledge of such counsel, there are no
Existing Instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed or incorporated by
reference as exhibits thereto; and the descriptions thereof and
references thereto are correct in all material respects.
(xvi) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental
authority or agency, is required for the Company's execution, delivery
and performance of the Underwriting Agreement and consummation of the
transactions contemplated thereby and by the Prospectus, except as
required under the Securities Act, applicable state securities or blue
sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting
Agreement by the Company and the performance by the Company of its
obligations thereunder (other than performance by the Company of its
obligations under the indemnification section of the Underwriting
Agreement, as to which no opinion need be rendered) (i) have been duly
authorized by all necessary corporate action on the part of the
Company; (ii) will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary; (iii) will not
constitute a breach of, or Default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries pursuant to, (A) [MCRC
NOTE], (B) Revolving Credit Facility with Fleet Bank N.A. as lender, or
(C) to the best knowledge of such counsel,
- -------------------------
-34-
<PAGE>
any material Existing Instrument; or (iv) to the best knowledge of such
counsel, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company
or any subsidiary.
(xviii) The Company is not, and after receipt of payment for
the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act.
(xix) Except as disclosed in the Prospectus, to the best
knowledge of such counsel, there are no persons with registration or
other similar rights to have any equity or debt securities registered
for sale under the Registration Statement or included in the offering
contemplated by the Underwriting Agreement [, other than the Selling
Shareholders], except for such rights as have been duly waived.
(xx) To the best knowledge of such counsel, neither the
Company nor any subsidiary is in violation of its charter or by-laws or
any law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary or is in Default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any material Existing Instrument, except in each
such case for such violations or Defaults as would not, individually or
in the aggregate, result in a Material Adverse Change.
(xxi) Such counsel is unaware of any facts which would
preclude the Company from having clear title to the Company's patents
and patent applications referred to or described in the Prospectus,
except as described in the Prospectus. To the best of such counsel's
knowledge, they and the Company have complied with the required duty of
candor and good faith in dealing with the Patent and Trademark Office,
including the duty to disclose to the PTO all information believed to
be material to the patentability of each issued U.S. patent or pending
application. Such counsel has no knowledge of any facts which would
form a basis for a belief that any of the patent applications owned by
the Company are unenforceable or invalid, or would be unenforceable or
invalid if issued as patents, except as described in the Prospectus.
Such counsel has no knowledge of any patents or patent applications of
third parties, which, if issued, would limit or prohibit the business
now conducted or proposed to be conducted by the Company as described
in the Prospectus, except as described therein.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of
the Company, representatives of the independent public or certified
public accountants for the Company and with representatives of the
Underwriters at which the contents of the Registration Statement and
the Prospectus, and any supplements or amendments thereto, and related
matters were discussed and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement
or the Prospectus (other than as specified above), and any supplements
or amendments thereto, on the basis of the foregoing, nothing has come
to their attention which would lead them to believe that either the
Registration Statement or
-35-
<PAGE>
any amendments thereto, at the time the Registration Statement or such
amendments became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date or at the
First Closing Date or the Second Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no belief as to the
financial statements or schedules or other financial or statistical
data derived therefrom, included in the Registration Statement or the
Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the Business
Corporation Laws of the Commonwealth of Massachusetts or the federal law of the
United States, to the extent they deem proper and specified in such opinion,
upon the opinion (which shall be dated the First Closing Date or the Second
Closing Date, as the case may be, shall be satisfactory in form and substance to
the Underwriters, shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them and shall be furnished to the
Representatives) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they and
the Underwriters are justified in relying upon such opinion of other counsel,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials.
-36-
<PAGE>
EXHIBIT B
The final opinion in draft form will be attached as Exhibit B at the time this
Agreement is executed.
The opinion of such counsel pursuant to Section 5h shall be rendered to
the Representatives at the request of the Company and shall so state therein.
References to the Prospectus in this Exhibit B includes any supplements thereto
---------
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, such
Selling Shareholder, enforceable in accordance with its terms, except as rights
to indemnification thereunder may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally equitable principles.
(ii) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, the
Underwriting Agreement, and its Custody Agreement and its Power of Attorney will
not contravene or conflict with, result in a breach of, or constitute a default
under, the charter or by-laws, partnership agreement, trust agreement or other
organizational documents, as the case may be, of such Selling Shareholder, or,
to the best of such counsel's knowledge, violate or contravene any provision of
applicable law or regulation, or violate, result in a breach of or constitute a
default under the terms of any other agreement or instrument to which such
Selling Shareholder is a party or by which it is bound, or any judgment, order
or decree applicable to such Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction over
such Selling Shareholder.
(iii) Such Selling Shareholder has good and valid title to all of the
Common Shares which may be sold by such Selling Shareholder under the
Underwriting Agreement and has the legal right and power, and all authorizations
and approvals required [under its charter and by-laws,] [partnership agreement,]
[trust agreement] [or other organizational documents, as the case may be,] to
enter into the Underwriting Agreement and its Custody Agreement and its Power of
Attorney, to sell, transfer and deliver all of the Common Shares which may sold
by such Selling Shareholder under the Underwriting Agreement and to comply with
its other obligations under the Underwriting Agreement, its Custody Agreement
and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such
Selling Shareholder has been duly authorized, executed and delivered by such
Selling Shareholder and is a valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as [rights to
indemnification thereunder may be limited by applicable law and except as] the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
-37-
<PAGE>
EXHIBIT C
__________, 1997
Montgomery Securities
Wessels, Arnold & Henderson, L.L.C.
H.C. Wainwright & Co., Inc.
As Representatives of the Several Underwriters
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: Peritus Software Services, Inc. (the "Company")
-------------------------------
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of Class
A Common Stock and/or Class B Common Stock of the Company (these securities,
along with the shares constituting the common stock of the Company after the
consummation of the Offering (as defined herein), shall be hereinafter referred
to as the "Common Stock") or securities convertible into or exchangeable or
exercisable for Common Stock. The Company proposes to carry out a public
offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into an underwriting arrangement with
the Company with respect to the Offering (the "Underwriting Agreement").
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) by the undersigned (collectively, "Securities"), or publicly
announce the undersigned's intention to do any of the foregoing, for a period
commencing on the date hereof and continuing through the close of trading on the
date 180 days after the date of the Prospectus (as defined in the Underwriting
Agreement. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
-38-
<PAGE>
Notwithstanding the foregoing, the undersigned does not need to obtain the prior
written consent of Montgomery Securities to transfer any or all of the
Securities (i) included in the Registration Statement filed in connection with
the Offering, (ii) by gift, will or intestacy, (iii) as a distribution, without
receipt of consideration, to limited partners or shareholders or members (in the
case of a limited liability company) of the undersigned, (iv) in the event the
undersigned is an individual, to his or her immediate family or to a trust the
beneficiaries of which are exclusively the undersigned and/or a member or
members of his or her immediate family; provided, however, that in the case of
transfers under clauses (ii), (iii) and (iv), it shall be a condition to the
transfer that the transferee execute an agreement stating that the transferee is
receiving and holding the Securities subject to the provisions of this
agreement, and there shall be no further transfer of such Securities except in
accordance with this agreement.
It is understood that, if the Underwriting Agreement between the underwriters
and the Company does not become effective by May 1, 1998, or if the Underwriting
Agreement (other than the provisions thereof which survive termination) shall
terminate or be terminated prior to payment for and delivery of the shares of
Common Stock, you will release the undersigned from the obligations under this
letter agreement.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- --------------------------
Printed Name of Holder
By
------------------------
Signature
- --------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
Representatives
-39-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Underwriters Number of
Firm Common
Shares to be Purchased
<S> <C>
Montgomery Securities......................... [ ]
Wessels, Arnold & Henderson [ ]
H.C. Wainwright & Co., Inc....................
[_____]....................................... [ ]
[_____]....................................... [ ]
[_____]....................................... [ ]
[_____]....................................... [ ]
[_____]....................................... [ ]
Total................................ [ ]
</TABLE>
-40-
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Selling Shareholder Number of Firm Number of Optional
Common Shares to Common Shares to
be Sold be Sold
<S> <C> <C>
Selling Shareholder #1
[address]
Attention: [_____]............ [____] [____]
Selling Shareholder #2
[address]
Attention: [_____]............. [____]
Total:.................. [____] [____]
===============================================
</TABLE>
-41-
<PAGE>
Representatives
-42-
<PAGE>
EXHIBIT 3.1
THE COMMONWEALTH OF MASSACHUSETTS
____________ WILLIAM FRANCIS GALVIN FEDERAL IDENTIFICATION
Examiner Secretary of the Commonwealth
ONE ASHBURTON PLACE, BOSTON, MASS 02108 NO. 04-3126919
-----------------
RESTATED ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to
the Commonwealth of Massachusetts.
__________
We, Dominic Chan, , President/xxxxxxxxxx and
Allen K. Deary , Clerk/ xxxxxxxxx of
Peritus Software Services, Inc.
-------------------------------
(Name of Corporation)
located at 164 Middlesex Turnpike, Burlington, MA 01803
------------------------------------------------
do hereby certify that the following restatement of the articles of organization
of the corporation was duly adopted at a meeting held on September 16
, 1994 , by vote of
200,153 shares of Common out of 200,453 shares outstanding,
............ ................ ............
(Class of Stock)
shares of out of shares outstanding, and
............ ................ ............
(Class of Stock)
shares of out of shares outstanding,
............ ................ ____________
(Class of Stock)
a majority
being at least xxxxxxxxxxx of each class of stock outstanding and entitled to
vote and of each class or series of stock adversely affected thereby.
1. The name by which the corporation shall be known is:
Peritus Software Services, Inc.
2. The purposes for which the corporation is formed are as follows:
C [_] 1. To develop, create, market, sell, license, acquire, service,
P [_] provide consultation services for, and generally to deal in
M [_] software engineering and software-related products; and
RA [_]
2. To carry on any business permitted by the laws of The
Commonwealth of Massachusetts to a corporation organized under
Chapter 156B of the Massachusetts General Laws.
<PAGE>
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each article
requiring each such addition is clearly indicated.
<PAGE>
3. The total number of shares and the par value, if any, of each
class of stock which the corporation is authorized to issue is as
follows:
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARE PAR VALUE
- -------------- ---------------- --------------- ---------
Preferred None None
Common 2,500,000 None
/./4. If more than one class is authorized, a description of each of
the different classes of stock with, if any, the preferences,
voting powers, qualifications, special or relative rights or
privileges as to each class thereof and any series now
established:
See Continuation Sheet 4A attached hereto and incorporated
herein.
/./5. The restrictions, if any, imposed by the articles of
organization upon the transfer of shares of stock of any class
are as follows:
None
/./6. Other lawful provisions, if any, for the conduct and regulation
of the business and affairs of the corporation, for its
voluntary dissolution, or for limiting, defining, or regulating
the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders:
See Continuation Sheet 6A attached hereto and incorporated
herein.
/./If there are no such provisions, state "None".
<PAGE>
CONTINUATION SHEET 4A
ARTICLE IV
Upon the filing of these Restated Articles of Organization, each share of
the corporation's common stock, no par value ("Common Stock"), that was issued
and outstanding or held in the corporation's treasury immediately prior to such
filing (the "Old Common Stock"), without further action, shall be split into and
reclassified as, and shall become, ten fully paid and non-assessable shares of
Common Stock (the "New Common Stock"); and the certificates formerly
representing shares of Old Common Stock that have been so split and reclassified
shall thereafter represent the shares of New Common Stock into which the shares
of Old Common Stock formerly represented thereby have been so split and
reclassified.
<PAGE>
CONTINUATION SHEET 6A
ARTICLE VI
(a) Meetings of the stockholders of the Corporation may be held anywhere
in the United States.
(b) The Corporation may be a partner to the maximum extent permitted by
law.
(c) The directors of the Corporation may make, amend or repeal the By-laws
in whole or in part, except with respect any provision thereof which, by
applicable law or the By-laws, requires action by the stockholder.
(d) No director of this Corporation shall be liable to this Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that such exculpation from liability is not
permitted by the Massachusetts Business Corporation Law as the same exists or
may hereafter be amended. No amendment to or repeal of this provision shall
apply to or have any effect on the liability of any director for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.
8052x
<PAGE>
/./We further certify that the foregoing restated articles of organization
effect no amendments to the articles of organization of the corporaiton as
heretofore amended, except amendments to the following articles III and IV
.................
................................................................................
(/./If there are no such amendments, state "None".)
BRIEFLY DESCRIBE AMENDMENTS IN SPACE BELOW:
Article III: The number of authorized shares of common stock, no par value
("Common Stock"), of the corporation is hereby increased from
250,000 shares to 2,500,000 shares.
Article IV: Each share of Common Stock of the corporation that was issued and
outstanding or held in the corporation's treasury immediately
prior to the filing of these Restated Articles of Organization is
hereby split into and reclassified as ten fully paid and non-
assessable shares of Common Stock.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, WE HAVE HERETO SIGNED OUR
NAMES THIS
27th DAY OF January IN THE YEAR 1995
....................................................... President/XXXXXXXXXX
Dominic Chan
....................................................... Clerk/XXXXXXXXXX
Allen K. Deary
<PAGE>
480708
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
I hereby approve the within restated articles of
organization and, the filing fee in the amount if
$2,550.00 having been paid, said articles are
deemed to have been filed with me this 3rd day
of February, 1995
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT
TO: Brian Keeler, Esq.
Bingham, Dana & Gould
---------------------
150 Federal Street
------------------
Boston, MA 02110
-----------------
TELEPHONE: (617) 951-8000
--------------
COPY MAILED
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
_________ William Francis Galvin
Examiner Secretary of the Commonwealth
Corporations Division
One Ashburton Place, Boston,MA 02108-1512
FEDERAL IDENTIFICATION
ARTICLES OF AMENDMENT NO. 04-3126919
------------------
GENERAL LAWS, CHAPTER 156B, SECTION 72
We, Dominic Chan , President/xxxxxxxxxx, and
Allen K. Deary , Clerk/xxxxxxxxxx of
Peritus Software Services, Inc.
-------------------------------
(EXACT Name of Corporation)
located at: 164 Middlesex Turnpike, Burlington, MA 01803
-----------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles
NUMBERED: _____ 3 and 4
-------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
_______ of the Articles of Organization were duly adopted at a meeting held on
Name March 13, 1995, by vote of:
-------- --
Approved
1,854,390 shares of COMMON STOCK out of 2.004,530 shares outstanding,
--------- ----------------- ---------
(type, class & series, if any)
_______ shares of ______________ out of ________ shares outstanding, and
(type, class & series, if any)
_______ shares of ______________ out of ________ shares outstanding,
(type, class & series, if any)
CROSS OUT xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
INAPPLI- xxxxxxxxx/1/
CABLE being at least two-thirds of each type, class or series
CLAUSE outstanding and entitled to vote thereon and of each type,
class or series of stock whose rights are adversely affected
thereby:-/2/
Article 3 is hereby amended as set forth below.
Article 4 is hereby amended to read as set forth in the
C [_] attached continuation sheet 4.
P [_]
M [_] /1/For amendments adopted pursuant to Chapter 156B, Section 70.
RA [_] /2/ For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate
8 1/2 x 11 sheets of paper leaving a left-hand margin of at least 1 inch
for binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition is
clearly indicated.
________
P.C.
<PAGE>
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: -------- --------
- ------------------------------------------------------------------------------
2,500,000
- ------------------------------------------------------------------------------
Preferred: -------- Preferred: -------- --------
- ------------------------------------------------------------------------------
</TABLE>
CHANGE the total authorized to:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: -------- --------
- -------------------------------------------------------------------------------
Class A Voting: 2,500,000
- -------------------------------------------------------------------------------
Class B Non- 40,000
Voting:
- -------------------------------------------------------------------------------
Preferred: ---- -------- Preferred: -------- --------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONTINUATION SHEET 4
PAGE ONE OF TWO
If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
1. VOTING RIGHTS.
(a) Except as otherwise required by law, the holder of each share of
Class A Voting Common Stock shall be entitled to vote on all matters and shall
be entitled to one vote for each share thereof held.
(b) Except as otherwise required by law, the holders of Class B Non-
Voting Common Stock shall have no voting rights as such.
2. DIVIDENDS, DISTRIBUTIONS, AND REDEMPTIONS. Dividends may be paid on
shares of Class A Voting Common Stock and Class B Non-Voting Common Stock,
respectively, if, when, and as declared by the Corporation's Board of Directors,
provided, that no dividend, distribution, or redemption shall be made in respect
of either the Class A Voting Common Stock or the Class B Non-Voting Common Stock
unless the same dividend, distribution, or redemption (on a per-share basis) is
made with respect to both such classes of Common Stock.
3. LIQUIDATION RIGHTS. Upon any voluntary or involuntary liquidation,
dissolution, or winding-up of the affairs of the Corporation, each issued and
outstanding share of Class A Voting Common Stock and Class B Non-Voting Common
Stock, respectively, shall entitle the holder thereof to receive an equal
portion of the remaining funds available for distribution of the holder of
Common Stock.
4. CONVERSION OF SHARES ON INITIAL PUBLIC OFFERING. Immediately upon the
closing of a public offering of share of Class A Voting Common Stock pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, on a firm-commitment underwritten basis, resulting in aggregate gross
proceeds to the Corporation of at least $10,000,000, each share of Class B Non-
Voting Common Stock that is then outstanding or held in the Corporation's
treasury shall be converted into and reclassified as, and shall become,
automatically and without any further action, one fully paid and non-assessable
share of Class A Voting Common Stock, regardless of whether the certificate
representing such share is surrendered to the Corporation, provided, however,
that the Corporation shall not be obligated to issue a certificate evidencing
the share of Class A Voting Common Stock issuable upon such conversion unless
the certificate evidencing the share of Class B Non-Voting Common Stock so
converted is either delivered to the Corporation, or the registered holder
thereof notifies the Corporation that such certificate has been lost, stolen, or
destroyed and executes an agreement satisfactory to Corporation to indemnify the
Corporation from any loss incurred by the Corporation in connection therewith.
5. CONVERSION OF OLD COMMON STOCK. Upon filing of these Articles of
Amendment, each share of the corporation's common stock, no par value, that was
issued and outstanding or held in the corporation's treasury immediately prior
to such filing (the "Old Common Stock"), shall be converted into and
reclassified as, and shall become, automatically and without any further action,
one fully paid and non-assessable share of Class A Voting Common Stock; and
<PAGE>
the certificates formerly representing shares of Old Common Stock that have been
so converted shall thereafter represent the shares of Class A Voting Common
Stock into which the shares of Old Common Stock formerly represented thereby
have been so converted, regardless of whether the certificate representing such
shares are surrendered to the Corporation, provided, however, that the
Corporation shall not be obligated to issue certificates evidencing such new
shares of Class A Voting Common Stock unless the certificates evidencing such
shares of Old Common Stock are either delivered to the Corporation, or in any
particular case the registered holder thereof notifies the Corporation that such
certificates have been lost, stolen, or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by the Corporation in connection therewith.
<PAGE>
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. EFFECTIVE DATE: upon
----
filing
- ------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 24th day of March, in the year 1995.
Dominic Chan , President/xxxxxxxxxx
Allen K. Deary , Clerk/xxxxxxxxxxxxxx
<PAGE>
497382
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
============================================
I hereby approve the within articles of amendment, and the
filing fee in the amount of $200.00 having been paid, said
articles are deemed to have been filed with me this 7th day
of April, 1995.
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO:
Brian Keeler, Esq.
TO: Bingham, Dana & Gould
---------------------
150 Federal Street
------------------
Boston, MA 02110
-----------------
Telephone: (617) 951-8000
--------------
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
_________ WILLIAM FRANCIS GALVIN
Examiner Secretary of the Commonwealth
Corporations Division
One Ashburton Place, Boston,MA 02108-1512
FEDERAL IDENTIFICATION
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72 NO. 04-3126919
------------
We, Dominic Chan , President/xxxxxxxxxx, and
Allen K. Deary, Clerk of
Peritus Software Services, Inc.
-------------------------------
(EXACT Name of Corporation)
located at: xxxxxxxxxxxxxxxxxxxxxx x 304 Concord Road, Billerica, MA 01821-3485
--------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED:
3
-
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
__________
Name of the Articles of Organization were duly adopted at a meeting held on
Approved April 3, 1995, by vote of:
1,854,810 shares of COMMON out of 2,004,530 shares outstanding,
----------- ---------------
type, class & series (if any)
___________ shares of ________ out of ________ shares outstanding, and
___________ shares of ________ out of ________ shares outstanding,
type, class & series (if any)
CROSS OUT xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
INAPPLICABLE xxxxxxxxxxxxxxxxxxx/1/
CLAUSE being at least two-thirds of each type, class or series
outstanding and entitled to vote thereon and of each
type, class or series of stock whose rights are
adversely affected thereby/2/
Article 3 is hereby amended as set forth below.
C [_]
P [_]
M [_] /1/For amendments adopted pursuant to Chapter 156B, Section 70.
RA [_] /2/For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form
is insufficient, additions shall be set forth on separate 8 1/2 x 11
sheets of paper leaving a left-hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition is
clearly indicated.
_________
P.C.
<PAGE>
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: ------- --------
- --------------------------------------------------------------------------------
Class A Voting 2,500,000
- --------------------------------------------------------------------------------
Class B Non- 40,000
Voting:
- --------------------------------------------------------------------------------
Preferred: -------- Preferred: ------------- --------
- --------------------------------------------------------------------------------
</TABLE>
CHANGE the total authorized to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: --------- --------
- --------------------------------------------------------------------------------
Class A Voting: 2,900,000
- --------------------------------------------------------------------------------
Class B Non- 40,000
Voting:
- --------------------------------------------------------------------------------
Preferred: -------- Preferred: -------- --------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. EFFECTIVE DATE:
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 10 day of April, in the year 1995.
President/xxxxxxxxxx
--------------------
Dominic Chan
Clerk/xxxxxxxxxx
----------------
Allen K. Deary
<PAGE>
498035
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
==================================================
I hereby approve the within articles of amendment, and the
filing fee in the amount of $400.00 having been paid, said
articles are deemed to have been filed with me this 13th day
of April, 1995.
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO:
Brian Keeler, Esq.
TO: Bingham, Dana & Gould
---------------------
150 Federal Street
------------------
Boston, MA 02110
-----------------
Telephone: (617) 951-8000
--------------
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-3126919
-------------------
________ THE COMMONWEALTH OF MASSACHUSETTS
Examiner WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
________
Name We, Dominic Chan ,*President/xxxxxx
------------
Approved
and Allen K. Deary , *Clerk/xxxxxxxxx
----------
of Peritus Software Services, Inc., '
--------------------------------
(Exact name of corporation)
located at: 304 Concord Road, Billerica, MA 01821-3485 '
-------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles
numbered:
3
--
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting
held on December 8, 1995, by vote of:
----------------
2,075,845 shares of Class A Voting Common Stock of 2,200,565
--------- --------------------------- ---------
(type, class & series, if any)
shares outstanding,
shares of of shares outstanding, and
(type, class & series, if any)
shares of of shares outstanding,
(type, class & series, if any)
C [_]
P [_] xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx being
M [_] at least two-thirds of each type, class or series outstanding and
R.A. [_] entitled to vote thereon and of each type, class or series of stock
whose rights are adversely affected thereby:
Article 3 is hereby amended as set forth below.
*Delete the inapplicable words. **Delete the inapplicable clause.
/1/For amendments adopted pursuant to Chapter 156B, Section 70.
/2/For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of
separate 8 1/2 x 11 sheets of paper with a left margin of at least 1
inch. Additions to more than one article may be made on a single sheet
_____ so long as each article requiring each addition is clearly indicated.
P.C.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: ------------ -----------
- --------------------------------------------------------------------------------
Class A Voting 2,900,000
- --------------------------------------------------------------------------------
Class B Non- 40,000
Voting
- --------------------------------------------------------------------------------
Preferred: ---------- Preferred: ------------ -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: ------------ -----------
- --------------------------------------------------------------------------------
Class A Voting 3,760,000
- --------------------------------------------------------------------------------
Class B Non- 40,000
Voting
- --------------------------------------------------------------------------------
Preferred: -------- Preferred: ------------ -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:
SIGNED UNDER THE PENALTIES OF PERJURY, this 14th day of December, 1995.
------ -------- --
, *President/xxxxxxxxxxxx
Dominic Chan
, *Clerk/xxxxxxxxxxxxxxx
Allen K. Deary
*Delete the inapplicable words
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
======================================================
I hereby approve the within Articles of Amendment, and the filing fee
in the amount of $860.00 having been paid, said articles are deemed to
------
have been filed with me this 15th day of December, 1995.
----- -------- --
Effective date:
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Peter B. Tarr, Esq.
------------------- ________
Hale and Dorr
------------- ________
60 State Street ________
---------------
Boston, MA 02109 ________
-----------------
Telephone: (617) 526-6000
-------------------------------
<PAGE>
Federal Identification Federal Identification
No. 04-3126919 No. 26562472
---------------- ----------------
COMMONWEALTH OF MASSACHUSETTS
__________
Examiner WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF XXXXXXXXXXXXXXX/ *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 79)
xxxxxxxxx*merger of Peritus Software Services, Inc.
-------------------------------
and
---
Vista Technologies Incorporated
-------------------------------
the constituent corporations, into
Peritus Software Services, Inc.
-------------------------------
xxxxxxxxxxxxxxxxxx*one of the constituent corporations organized under
the laws of: Massachusetts.
-------------
The undersigned officers of each of the constituent corporations
certify under the penalties of perjury as follows:
1. An agreement of xxxxxxxxxxxx *merger has been duly adopted in
compliance with the requirements of General Laws, Chapter 156B,
Section 79, and will be kept as provided by Subsection (c) thereof.
The xxxxxxxxxxxxx *surviving corporation will furnish a copy of said
agreement to any of its stockholders, or to any person who was a
stockholder of any constituent corporation, upon written request and
without charge.
2. The effective date of the xxxxxxxxxxxxxx *merger determined
pursuant to the agreement of xxxxxxxxxx *merger shall be the date
approved and filed by the Secretary of the Commonwealth. If a later
effective date is desired, specify such date which shall not be more
than thirty days after the date of filing:
3. (For a merger)
**The following amendments to the Articles of Organization of the
surviving corporation have been effected pursuant to the agreement of
merger:
C [_] None
P [_]
M [_] (For a consolidation)
RA [_] (a) The purpose of the resulting corporation is to engage in the
following business activities:
*Delete the inapplicable words.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11
sheets of paper with a left margin of at least 1 inch. Additions to
more than one article may be made on a single sheet as long as each
article requiring each addition is clearly indicated.
________
P.C.
<PAGE>
(For a consolidation)
(b) State the total number of shares and the par value, if any, of each class
of stock, which the resulting corporation is authorized to issue:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
**(c) If more than one class of stock is authorized, state a distinguishing
designation for each class and provide a description of the preferences, voting
powers, qualifications, and special or relative rights or privileges of each
class and of each series then established.
**(d) The restrictions, if any, on the transfer of stock contained in the
agreement of consolidation are:
**(e) Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
Item 4 below may be deleted if the resulting/surviving corporation is organized
under the laws of a state other than Massachusetts.
4. The information contained in Item 4 is not a permanent part of the Articles
of Organization of the xxxxxxxxxxxxxxxx *surviving corporation.
(a) The street address (post office boxes are not acceptable) of the
xxxxxxxxxxxxxxxxx *surviving corporation in Massachusetts is:
304 Concord Road, Billerica, MA 01821-3485
**If there are no provisions state "None."
<PAGE>
(b) The name, residential address and post office address of each director and
officer of the xxxxxxxxxxxxxxxxx* surviving corporation is:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
President: Dominic Chan 1196 North Road, Carlisle, MA 01741
Treasurer: Allen K. Deary 1115 North Road, Carlisle, MA 01741
Clerk: Allen K. Deary 1115 North Road, Carlisle, MA 01741
Directors: Art Carr 44 Donnelly Drive, Dover, MA 02030
Dominic Chan 1196 North Road, Carlisle, MA 01741
Allen K. Deary 1115 North Road, Carslisle, MA 01741
Robert Kelly 2 Day Street, Norfolk, MA 02056
Axel Leblois 62 Pond Road, Wellesley, MA 02181
Roland Pampel Prudential Center Apartments,
780 Boylston Street, Apt. 14H,
Boston, MA 02199
</TABLE>
(c) The fiscal year end (i.e. tax year) of the xxxxxxxxxxxx *surviving
corporation shall end on the last day of the month of: December.
(d) The name and business of the resident agent, if any, of the *surviving
corporation is:
None
Item 5 below may be deleted if the resulting/surviving corporation is organized
under the laws of Massachusetts.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
FOR MASSACHUSETTS CORPORATIONS
The undersigned *President xxxxxxxxxx and *Clerk xxxxxxxxxxxxx of Peritus
-------
Software Services, Inc., a corporation organized under the laws of
- -----------------------
Massachusetts, further state under the penalties of perjury that the agreement
of xxxxxxxx *merger has been duly executed on behalf of such corporation and
duly approved in the manner required by General Laws, Chapter 156B, Section 78.
Dominic Chan , *President/xxxxxxxxxx
Allen K. Deary , *Clerk/xxxxxxxxxx
FOR CORPORATIONS ORGANIZED IN A STATE OTHER THAN MASSACHUSETTS
The undersigned, +Adarsh K. Arora, President and ++David Jakopac,
-------------------------- --------------
Secretary, of Vista Technologies Incorporated, a corporation organized under the
-------------------------------
laws of Illinois, further state under the penalties of perjury that the
--------
agreement of xxxxxxxxxxx *merger has been duly adopted by such corporation in
the manner required by the laws of Illinois.
--------
+ Adarsh K. Arora
---------------
++ David Jakopac
-------------
*Delete the inappliable words.
+Specify the officer having powers and duties corresponding
to those of the president or vice president of a Massachusetts
corporation organized under General Laws, Chapter 156B
++Specify the officer having powers and duties corresponding
<PAGE>
to the clerk or assistant clerk of such a Massachusetts corporation.
<PAGE>
526968
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 79)
=================================================
I hereby approve the within Articles of xxxxxxxxxxxxx*Merger and, the
filing fee in the amount of $250.00, having been paid, said articles
are deemed to have been filed with me this 9th day of February, 1996.
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Peter B. Tarr, Esq.
-------------------
Hale and Dorr
-------------
Boston, MA 02109
-----------------
Telephone: (617) 526-6000
--------------
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-3126919
-------------------
THE COMMONWEALTH OF MASSACHUSETTS
________ WILLIAM FRANCIS GALVIN
Examiner Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
We, Dominic Chan ,*President/xxxxxx
-----------
________
Name and Allen K. Deary , *Clerk/xxxxxxxxx
--------------
Approved
of Peritus Software Services, Inc. ,
-------------------------------
(Exact name of corporation)
located at: 304 Concord Road, Billerica, MA 01821-3485 ,
-------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3 and 4
-------
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on
March 15, 1996, by vote of:
---------------
1,672,341 shares of Class A Voting Common Stock of 2,337,815 shares
--------- --------------------------- ---------
outstanding, (type, class & series, if any)
32,050 shares of Class B Non-Voting Common Stock of 39,715 shares
------ ------------------------------- ------
outstanding, and (type, class & series, if any)
shares of of shares outstanding,
(type, class & series, if any)
C [_]
P [_] xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx being
M [_] at least two-thirds of each type, class or series outstanding and
R.A. [_] entitled to vote thereon and of each type, class or series of stock
whose rights are adversely affected thereby:
Article 3 is hereby amended as set forth below.
Article 4 is hereby amended by the addition of the provisions set
forth in the attached continuation sheet 4.
*Delete the inapplicable words. **Delete the inapplicable clause.
/1/For amendments adopted pursuant to Chapter 156B, Section 70.
/2/For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of
separate 8 1/2 x 11 sheets of paper with a left margin of at least 1
inch. Additions to more than one article may be made on a single sheet
so long as each article requiring each addition is clearly
P.C. indicated.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ------------------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: ____________ ________
- ------------------------------------------------------------------------------------------
Class A Voting 3,760,000
- ------------------------------------------------------------------------------------------
Class B Non- 40,000
Voting
- ------------------------------------------------------------------------------------------
Preferred: ________ Preferred: _____________ ________
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ------------------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: ___________ ________
- ------------------------------------------------------------------------------------------
Class A Voting 9,828,313
- ------------------------------------------------------------------------------------------
Class B Non- 275,000
Voting
- ------------------------------------------------------------------------------------------
Preferred: Preferred: ___________ ________
- ------------------------------------------------------------------------------------------
Series A 1,903,525
Convertible
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Continuation Sheet 4
--------------------
SERIES A CONVERTIBLE PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and known
----------------
as "Series A Convertible Preferred Stock" shall consist of 1,903,525 shares.
2. Voting.
------
2A. General. Except as may be otherwise provided in these terms of
-------
the Series A Convertible Preferred Stock or by law, the Series A Convertible
Preferred Stock shall vote together with all other classes and series of stock
of the Corporation entitled to vote as a single class on all actions to be taken
by the stockholders of the Corporation, including, but not limited to actions
amending the Restated Articles of Organization of the Corporation to increase
the number of authorized shares of any class of common stock (including, but not
limited to, an increase in the number of authorized shares of Class A Voting
Common Stock, no par value (the "Class A Common Stock") or any increase in the
number of authorized shares of Class B Non-Voting Common Stock" (the "Class B
Non-Voting Common Stock") and, collectively with the Class A Common Stock and
any other classes of common stock, the "Common Stock"). Each share of Series A
Convertible Preferred Stock shall entitle the holder thereof to such number of
votes per share on each such action as shall equal the number of shares of Class
A Common Stock (including fractions of a share) into which each share of Series
A Convertible Preferred Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
----------
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of nine(9).
2C. Board Seats. The holders of the Series A Convertible Preferred
-----------
Stock, voting as a separate series, shall be entitled to elect two (2) directors
of the Corporation. The holders of the Series A Convertible Preferred Stock and
the Common Stock, voting together as a single class (with the Series A
Convertible Preferred Stock voting on an as converted basis), shall be entitled
to elect the other directors of the Corporation. Notwithstanding the foregoing
or anything else to the contrary provided in the Restated Articles of
Organization, as amended, if the Corporation fails or refuses, for any reason or
for no reason, to redeem on the Redemption Date (as defined in paragraph 7) all
of the then outstanding shares of Series A Convertible Preferred Stock in
accordance with the terms and provisions of
<PAGE>
paragraph 7, the holders of the Series A Convertible Preferred Stock
outstanding, any two directors shall have the right to call a meeting of the
Board of Directors or stockholders. At any meeting (or in a written consent in
lieu thereof) held for the purpose of electing directors, the presence in person
or by proxy (or the written consent) of the holders of a majority of the shares
of Series A convertible Preferred Stock then outstanding shall constitute a
quorum of the Series A Convertible Preferred Stock for the election of directors
to be elected solely by the holders of the Series A Convertible Preferred Stock
or jointly by the holders of the Series A Convertible Preferred Stock and the
Class A Common Stock. A vacancy in any directorship elected by the holders of
the Series A Convertible Preferred Stock shall be filed only by vote or written
consent of the holders of the Series A Convertible Preferred Stock and a vacancy
in the directorship elected jointly by the holders of the Series A Convertible
Preferred Stock and the Class A Common Stock shall be filled only by vote or
written consent of the Series A Convertible Preferred Stock and the Class A
Common Stock as provided above.
3. Dividends. The holders of the Series A Convertible Preferred Stock
---------
shall be entitled to receive, out of funds legally available therefor, when and
if declared by the Board of Directors, quarterly dividends (the "Accruing
Dividends") at the rate per annum of (a) $0.3825 per share plus (b) 10% per
annum of all previously accrued by unpaid Accruing Dividends from the preceding
March 15. Accruing Dividends shall accrue from day to day, whether or not
earned or declared, and shall be cumulative. The Board of Directors shall have
no obligation to declare any dividends.
4. Liquidation. Upon any liquidation, dissolution or winding up the
-----------
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock shall be entitled, before any distribution
or payment is made upon any stock ranking on liquidation junior to the Series A
Convertible Preferred Stock, to be paid an amount equal to the greater of (i)
$3.825 per share plus, in the case of each share, an amount equal to all
Accruing Dividends unpaid thereon (whether or not declared) and any other
dividends declared but unpaid thereon, computed to the date payment thereof is
made available, minus the product of (a) 0.366 multiplied by (b) the amount
remaining for distribution with respect to each share of Class A Common Stock
after payment is made to the holders of Series A Preferred Stock pursuant to
this subclause (i), or (ii) such amount per share as would have been payable had
each such share been converted to Class A Common Stock pursuant to paragraph 6
immediately prior to such liquidation, dissolution or winding up, and the
holders of Series A Convertible Preferred Stock shall not be entitled to any
further payment, such amount payable with respect to one share of Series A
Convertible Preferred Stock being sometimes referred to as the "Liquidation
Preference Payment" and with respect to all shares of Series A Convertible
Preferred Stock being sometimes referred to as the "Liquidation Preference
Payments". If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or
<PAGE>
involuntary, the assets to be distributed among the holders of Series A
Convertible Preferred Stock shall be insufficient to permit payment to the
holders of Series A Convertible Preferred Stock of the amount distributable as
aforesaid, then the entire assets of the Corporation to be so distributed shall
be distributed ratably among the holders of Series A Convertible Preferred
Stock. Upon any such liquidation, dissolution or winding up of the Corporation,
after the holders of Series A Convertible Preferred Stock shall have been paid
in full the amounts to which they shall be entitled, the remaining net assets of
the Corporation may be distributed to the holders of stock ranking on
liquidation junior to the Series A Convertible Preferred Stock. Written notice
of such liquidation, dissolution or winding up, stating a payment date, the
amount of the Liquidation Preference Payments and the place where said
Liquidation Preference Payments shall be payable, shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, not less than 20 days prior to the payment date stated
therein, to the holders of record of Series A Convertible Preferred Stock, such
notice to be addressed to each such holder at its address as shown by the
records of the Corporation. The consolidation or merger of the Corporation into
or with any other entity or entities which results in the exchange of
outstanding shares of the Corporation for securities or other consideration
issued or paid or caused to be issued or paid by any such entity or affiliate
thereof (other than a merger to reincorporate the Corporation in a different
jurisdiction), and the sale, lease abandonment, transfer or other disposition by
the Corporation of all or substantially all its assets, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
the provisions of this paragraph 4. For purposes hereof, the Common Stock shall
rank on liquidation junior to the Series A Convertible Preferred Stock.
5. Restrictions. At any time when at least 951,763 shares of Series A
------------
Convertible Preferred Stock are outstanding, except where the vote or written
consent of the holders of a greater number of shares of the Corporation is
required by law or by the Restated Articles of Organization, as amended, and in
addition to any other vote required by law or the Restated Articles of
Organization, as amended, without the approval of the holders of at least two-
thirds of the then outstanding shares of Series A Convertible Preferred Stock,
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a series, the Corporation will not:
5A. Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the Series A
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Series A Convertible Preferred Stock or increase the authorized amount of
any additional class or series of shares of stock unless the same ranks junior
to the Series A Convertible Preferred Stock as to the distribution of assets on
the liquidation, dissolution or winding up of
<PAGE>
the Corporation, or create or authorize any obligation or security convertible
into shares of Series A Convertible Preferred Stock or into shares of any other
class or series of stock unless the same ranks junior to the Series A
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, whether any such creation,
authorization or increase shall be by means of amendment to the Restated
Articles of Organization, as amended or by merger, consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or sell, lease, abandon, transfer or otherwise dispose of all or
substantially all its assets;
5C. Consolidate or merge into or with any other entity in which the
shares of Common Stock and Series A Convertible Preferred Stock of the
Corporation outstanding immediately prior to the close of the transaction
represent, or are converted into or exchanged for equity securities that
represent, less than a majority of the combined voting power of the equity
securities of the surviving or resulting entity immediately following the close
of the transaction;
5D. Amend, alter or repeal its Amended and Restated Articles of
Organization if the effect would be detrimental or adverse in any manner with
respect to the rights of the holders of the Series A Convertible Preferred
Stock;
5E. Pay an dividend or make any distribution on, any shares of stock
other than the Series A Convertible Preferred Stock, except for dividends or
other distributions payable on the Common Stock solely in the form of additional
shares of Common Stock;
5F. Purchase or set aside any sums for the purchase of any shares of
stock other than the Series A Convertible Preferred Stock, other than (i) the
purchase of an aggregate of 189,588 shares of Common Stock (appropriately
adjusted to reflect the occurrence of any event described in subparagraph 6F) to
be purchased in connection with the closing of the initial sale of shares of
Common Stock (appropriately adjusted to reflect the occurrence of any event
described in subparagraph 6F) to be repurchased from Dominic K. Chan and sold to
employees of the Corporation at the same price.
5G. Redeem or otherwise acquire any shares of Series A Convertible
Preferred Stock except as expressly authorized in paragraph 7 hereof or pursuant
to a purchase offer made pro rata to all holders of the shares of Series A
Convertible Preferred Stock on the basis of the aggregate number of outstanding
shares of Series A Convertible Preferred Stock then held by each such holders.
<PAGE>
6. Conversions. The holders of shares of Series A Convertible Preferred
-----------
Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of this
----------------
paragraph 6, the holder of any share or shares of Series A Convertible Preferred
Stock shall have the right, at its option at anytime, to convert any such shares
of Series A Convertible Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series A
Convertible Preferred Stock) into such number of fully paid and nonassessable
shares of Class A Common Stock as is obtained by (i) multiplying the number of
shares of Series A Convertible Preferred Stock so to be converted by $2.80 and
(ii) dividing the result by the conversion price of $2.80 per share or, in case
an adjustment of such price has taken place pursuant to the further provisions
of this paragraph 6, then by the conversion price as last adjusted and in effect
at the date any share or shares of Series A Convertible Preferred Stock are
surrendered for conversion (such price, or such price as last adjusted, being
referred to as the "Conversion Price"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder elects
to convert a sedated number of shares of Series A Convertible Preferred Stock
into Class A Common Stock and by surrender of a certificate or certificates for
the shares so to be converted to the Corporation at its principal office (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of the Series A Convertible Preferred Stock)
at any time during its usual business hours on the date set forth in such
notice, together with a statement of the name or names (with address) in which
the certificate or certificates for shares of Class A Common Stock shall be
issued.
6B. Issuance of Certificates; Time Conversion Effected. Promptly
--------------------------------------------------
after the receipt of the written notice referred to in subparagraph 6A and
surrender of the certificate or certificates for the share or shares of Series A
Convertible Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may director, a certificate or certificates for the
number of whole shares of Class A Common Stock issuable upon the conversion of
such share or shares of Series A Convertible Preferred Stock. To the extent
permitted by law, such conversion shall be deemed to have been effected and the
Conversion Price shall be determined as of the close of business on the date on
which such written notice shall have been received by the Corporation and the
certificate or certificates for such share or shares shall have been surrendered
as aforesaid, and at such time the rights of the holder of such share or shares
of Series A Convertible Preferred Stock shall cease, the person or person in
whose name or names any certificate or certificates for shares of Class A Common
Stock shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
<PAGE>
6C. Fractional Shares; Dividends; Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of Series A Convertible Preferred Stock
into Class A Common Stock and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Class A Common Stock issue
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends, excluding Accruing Dividends, accrued
and unpaid on the shares of Series A Convertible Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in subparagraph 6B. In case the number of shares of Series A
Convertible Preferred Stock represented by the certificate or certificates
surrendered pursuant to subparagraph 6A exceeds the number of shares converted,
the Corporation shall, upon such conversion, execute and deliver to the holder,
at the expense of the Corporation, a new certificate or certificates for the
number of shares of Series A Convertible Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Class A Common Stock would, except for the provisions of the
first sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share of Class A Common Stock
would, except for the provisions of the first sentence of this subparagraph 6C,
be delivered upon such conversion, the Corporation, in lieu of delivering such
fractional share, shall pay to the holder surrendering the Series A Convertible
Preferred Stock for conversion an amount in cash equal to the current market
price of such fractional share as determined in good faith by the Board of
Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
-------------------------------------------------
provided in subparagraph 6E and subject to paragraph 9, if and whenever the
Corporation shall issue or sell, or is, in accordance with subparagraphs 6D(1)
through 6D(7), deemed to have issued or sold, any shares of Common Stock for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then forthwith upon such issue or sale,
the Conversion Price shall be reduced to the price determined by dividing (i) an
amount equal to the sum of (a) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing
Conversion Price and (b) consideration per share, if any, received by the
Corporation upon such issue or sale multiplied by the number of shares of Common
Stock issued or sold, by (ii) the total number of shares of Common Stock (or
Common Stock equivalent on an as converted basis) outstanding immediately after
such issue or sale.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to
6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any warrants or other rights to subscribe for or to
<PAGE>
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or
exchangeable stock or securities being called "Convertible Securities")
whether or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities (determined
by dividing (i) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, the case of such
Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale
of such Convertible Securities and upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Option) shall be
less than the Conversion Price in effect immediately prior to the time of
the granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to have been
issued for such price per share as of the date of granting of such Options
or the issuance of such Convertible Securities and thereafter shall be
deemed to be outstanding. Except as otherwise provided in subparagraph
6D(3), no adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock or such Convertible SECURITIES upon exercise of
such Options or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
----------------------------------
Corporation shall in any manner issue (whether directly or by assumption in
a merger or otherwise) or sell any Convertible Securities, whether or not
the rights to exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the
total amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the
Conversion Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of
<PAGE>
all such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in subparagraph 6D(3), no
adjustment of the Conversion Price shall be made upon the actual issue of
such Common Stock upon conversion or exchange of such Convertibles
Securities and (b) if any such issue or sale of such Convertible Securities
is made upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been or are
to be made pursuant to other provisions of this subparagraph 6D, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
-----------------------------------------
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 6D(1), the
additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities referred to in subparagraph 6D(1) or 6D(2),
or the rate at which Convertible Securities referred to in subparagraph
6D(1) or 6D(2) are convertible into or exchangeable for the Common Stock
shall change at any time (including, but not limited to, changes under or
by reason of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall forthwith be
readjusted to the Conversion Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold,
but only if as a result of such adjustment the Conversion Price then in
effect hereunder is thereby reduced; and on the termination of any such
Option or any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall forthwith
be increased to the Conversion Price which would have been in effect at the
time of such termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such termination, never been
issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or distributions upon the
Common Stock), Options or Convertible Securities, any Common Stock, Options
or Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold
without consideration.
6D(5) Consideration for Stock. In case any shares of Common
-----------------------
Stock, Options or Convertible Securities shall be issued or sold for cash,
the
<PAGE>
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any Options shall be issued in connection
with the issue and sale of other securities of the Corporation, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be
deemed to be deemed to have been issued for such consideration as
determined in good faith by the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take a record
-----------
of the holders of its Common Stock for the purpose of entitling them (i) to
received a dividend or other distribution payable in Common Stock, Options
or Convertible Securities or (ii) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
6D(7) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Stock for the purpose of
this subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein to the
---------------------------------------
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance from and after
the date of filing of these terms of the Series A Convertible Preferred Stock of
(i) up to an aggregate of 2,061,025 shares (approximately adjusted to reflect
the occurrence of any event described in subparagraph 6F) of the Common Stock to
directors, officers, employees or consultants of the Corporation in connection
with their service as directors of the Corporation, their employment by the
Corporation or their retention as consultants by the Corporation, and (ii) up to
100,000 shares (appropriately adjusted to reflect the occurrence of any event
described in subparagraph 6F) of Common Stock to officers and employees of the
Corporation, provided that a like
<PAGE>
number of shares of Common Stock have been repurchased by the Corporation from
Dominic K. Chan, plus the issuance of up to 312,500 shares (appropriately
adjusted to reflect the occurrence of any event described in subparagraph 6F) of
Common Stock issuable upon the exercise of warrants outstanding as of March 15,
1996, plus such number of shares of Common Stock which are repurchased by the
Corporation and at repurchase prices not exceeding the respective original
purchase prices paid by such persons to the Corporation therefor.
6F. Subdivision or Combination of Common Stock. In case the
------------------------------------------
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased. In the case of any such subdivision, no further
adjustment shall be made pursuant to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any capital
----------------------------------
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series A Convertible Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Class A Common Stock immediately theretofore receivable
upon the conversion of such share or shares of Series A Convertible Preferred
Stock, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Class
A Common Stock equal to the number of shares of such Common Stock immediately
thereto fore receivable upon such conversion had such reorganization or
reclassification not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of such holder to the end
that the provision thereof (including without limitation provisions for
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
6H. Failure to Redeem. If the Corporation fails, for any reason or
-----------------
for no reason, to redeem on the Redemption Date (as defined in paragraph 7) all
of the then outstanding shares of Series A Convertible Preferred Stock in
accordance with the terms and conditions of paragraph 7, the Conversion Price
then in effect shall be immediately reduced to an amount equal to 90% thereof.
Thereafter, until such redemption has been made in full in accordance with such
terms and conditions, the
<PAGE>
Conversion Price shall be further reduced on the 90th day following the
Redemption Date and at the end of each 90-day period thereafter to an amount
equal to 90% of the Conversion Price in effect immediately prior to each such
reduction.
6I. Notice of Adjustment. Upon any adjustment of the Conversion
--------------------
Price, then and in each such case the Corporation shall give written notice
thereof, by delivery in person, certified or registered mail, return receipt
requested, telecopier or telex, addressed to each holder of shares of Series A
Convertible Preferred Stock at the address of such holder as shown on the books
of the Corporation, which notice shall state the Conversion Price resulting from
such adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6J. Other Notices. In case at anytime:
-------------
(i) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into another entity or
entities, or a sale, lease, abandonment, transfer or other disposition of
all or substantially all its assets; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall given, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Series A Convertible Preferred
Stock at the address of such holder as shown on the books of the Corporation,
(a) at least 20 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, at least 20 days' prior written notice
of the date which the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock
<PAGE>
shall be entitled thereto and such notice in accordance with the foregoing
clause (b) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding up, as the case may be.
6K. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A Convertible Preferred Stock as herein
provided, such number of shares of Class A Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series A Convertible
Preferred Stock. The Corporation covenants that all shares of Class A Common
Stock which shall be so issued shall be duly and validly issued and fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Class A Common Stock
is at all times equal to or less than the Conversion Price in effect at the
time. The Corporation will take all such action as may be necessary to assure
that all such shares of Class A Common Stock may be so issued without violation
of any applicable law or regulation, or of any requirement of any additional
securities exchange upon which the Common Stock may be listed. The Corporation
will not take any action which results in any adjustment of the Conversion Price
of the total number of shares of Class A Common Stock issued and issuable after
such action upon conversion of the Series A Convertible Preferred Stock would
exceed the total number of shares of Class A Common Stock then authorized by the
Restated Articles of Organization, as amended.
6L. No Reissuance of Series A Convertible Preferred Stock. Shares of
-----------------------------------------------------
Series A Convertible Preferred Stock which are converted into shares of Class A
Common Stock as provided herein shall not be reissued.
6M. Issue Tax. The issuance of certificates for shares of Class A
---------
Common Stock upon conversion of Series A Convertible Preferred Stock shall be
made without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series A Convertible Preferred Stock which is being converted.
6N. Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any Series A Convertible Preferred Stock
or of any shares of Class A Common Stock issued or issuable upon the conversion
of any shares of Series A Convertible Preferred Stock in any manner which
interferes with
<PAGE>
the timely conversion of such Series A Convertible Preferred Stock, except as
may otherwise be required to comply with applicable securities laws.
6O. Definition of Common Stock. As used in this paragraph 6, the
--------------------------
term "Common Stock" shall mean and include the Corporation's authorized Class A
Common Stock, no par value per share, and the Corporation's Class B Common
Stock, no par value per share (each as constituted on the date of filing of
these terms of the Series A Convertible Preferred Stock), unless otherwise
specifically limited to "Class A Common Stock", and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of
shareholders thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; provided that the shares of Class A Common Stock receivable
upon conversion of shares of Series A Convertible Preferred Stock shall include
only shares designated as Class A Common Stock of the Corporation on the date of
filing of this instrument, or in case of any reorganization or reclassification
of the outstanding shares thereof, the stock, securities or assets provided for
in subparagraph 6G.
6P. Mandatory Conversion. If at any time the Corporation shall
--------------------
effect a firm commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the public shall be at
least $15 million and (ii) the price paid by the public for such shares shall be
at least $5.60 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series A Convertible Preferred Stock shall automatically
convert to shares of Class A Common Stock on the basis set forth in this
paragraph 6. Holders of shares of Series A Convertible Preferred Stock so
converted may deliver to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate by notice
in writing to such holders) during its usual business hours, the certificate or
certificates for the shares so converted. As promptly as practicable
thereafter, the Corporation shall issue and deliver to such holder a certificate
or certificates of the number of whole shares of Class A Common Stock to which
such holder is entitled, together with any cash dividends and payment in lieu of
fractional shares to which such holder may be entitled pursuant to subparagraph
6C. Until such time as a holder of shares of Series A Convertible Preferred
Stock shall surrender his or its certificates therefor as provided above, such
certificates shall be deemed to represent the shares of Class A Common Stock to
which such holder shall be entitled upon the surrender thereof.
7. Redemption. The shares of Series A Convertible Preferred Stock shall
----------
be redeemed as follows:
<PAGE>
7A. Option Redemption. The Corporation shall not have the right to
-----------------
call or redeem at any time all or any shares of Series A Convertible Preferred
Stock. Subject to the conditions set forth in this paragraph 7, upon receiving
notice (the "Notice") from the holders of a 66-2/3% of the then outstanding
shares of the Series A Convertible Preferred Stock, the Corporation shall
redeem, to the extent permitted by law, all of the shares of the then
outstanding shares of Series A Convertible Preferred Stock in three annual
installments as follows:
Percentage of Shares of Series A
Convertible Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- -------------------- --------------------------
March 15, 2001 33-1/3% of all shares of Series A
Convertible Preferred Stock Outstanding
on March 15, 2001.
March 15, 2002 50% of all the shares of Series A
Convertible Preferred Stock outstanding
on March 15, 2002.
March 15, 2003 100% of all the shares of Series A
Convertible Preferred Stock outstanding
on March 15, 2003.
7B. Redemption Price and Payment. Notwithstanding anything to the
----------------------------
contrary in this paragraph 7, the Corporation shall only be obligated to redeem
the Series A Convertible Preferred Stock with respect to each holder if, at the
time of such redemption, the holder also presents for redemption 0.366 shares of
Class A Common Stock for each shares of Series A Convertible Preferred Stock to
be redeemed. The Corporation shall be required to redeem the Series A
Convertible Preferred Stock according to the schedule set forth above and the
accompanying Class A Common Stock presented for redemption. The shares of
Series A Convertible Preferred Stock to be redeemed on any Redemption Date shall
be redeemed by paying for each share in cash an amount equal to $2.80 per share
plus, in the case of each share, an amount equal to all dividends, including
Accruing Dividends, declared but unpaid thereon, computed to such Redemption
Date, such amount being referred to as the "Redemption Price". The shares of
Class A Common Stock to be redeemed on any Redemption Date shall be redeemed by
paying for each share in cash an amount equal to $2.80 per share. Such payments
shall be made in full on the applicable Redemption Date to the holders entitled
thereto. Notwithstanding the foregoing, upon delivery of a written notice to
the Company (a "Tax Notice"), holders of a majority of the Series A Convertible
Preferred Stock shall have the right, on any of the Redemption Dates set forth
above, to sell additional shares of Series A Convertible Preferred Stock to the
Company so that such
<PAGE>
redemption will be treated as an "exchange" under Section 302(a) and (b) of the
Internal Revenue Code of 1986, as amended; provided, however, that the
Corporation shall only be obligated to redeem the Series A Convertible Preferred
Stock with respect to each holder if, at the time of such redemption, the holder
presents for redemption 0.366 shares of Class A Common Stock for each share of
Series A Convertible Preferred Stock to be redeemed. The Corporation shall be
required to redeem such accompanying Class A Common Stock presented for
redemption. If holders of a majority of the Series A Convertible Preferred Stock
delivered a Tax Notice to the Company as provided above, the Company shall
redeem each share of Series A Convertible Preferred Stock set forth in the Tax
Notice by paying the Redemption Price for each accompanying share of Class A
Common Stock. At its election, the Company may satisfy its obligation to redeem
the shares of Series A Convertible Preferred Stock set forth in the Tax Notice
and the accompanying shares of Class A Common Stock by delivering to the holders
of the Series A Convertible Preferred Stock a promissory note of the Company,
being interest at 10%, for the full amount of the Redemption Price of the shares
set forth in the Tax Notice and the amount due with respect to the accompanying
shares of Class A Common Stock to be redeemed, and due and payable on such
Redemption Dates as the shares set forth in the Tax Notice could have been
redeemed pursuant to paragraph 7A; provided, however, that the ability of the
Company to issue a promissory note to cover the redeemed shares of Series A
Convertible Preferred Stock set forth in the Tax Notice and the accompanying
shares of Class A Common Stock to be redeemed will be subject to compliance by
the Company with the General Corporation Law of the Commonwealth of
Massachusetts.
7C. Redemption Mechanics. At least 20 but not more than 30 days
--------------------
prior to each Redemption Date, written notice (the "Redemption Notice") shall be
given by the Corporation by delivery in person, certificate or registered mail,
return receipt requested, telecopier or telex, to each holder of record (at the
close of business on the business day next preceding the day on which the
Redemption Notice is given) of shares of Series A Convertible Preferred Stock
notifying such holder of the redemption and specifying the Redemption Price,
such Redemption Date, the number of shares of Series A Convertible Preferred
Stock to be redeemed from such holder (computered on a pro rata basis in
accordance with the number of such shares held by all holders thereof), the
number of accompanying shares of Class A Common Stock to be redeemed from such
holder and the place where said Redemption Price shall be payable. The
Redemption Notice shall be addressed to each holder at his address as shown by
the records of the Corporation. From and after the close of business on a
Redemption Date, unless there shall have been a default in the payment of the
Redemption Price, all rights of holders of shares of Series A Convertible
Preferred Stock (except that right to receive the Redemption Price) shall cease
with respect to the shares to be redeemed on such Redemption Date, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. If the funds of the
<PAGE>
Corporation legally available for redemption of shares of Series A Convertible
Preferred Stock and the accompanying Class A Common Stock on a Redemption Date
are insufficient to redeem the total number of shares of Series A Convertible
Preferred Stock and the accompanying Class A Common Stock to be redeemed on such
Redemption Date, the holders of such shares shall share ratably in any funds
legally available for redemption of such shares according to the respective
amounts which would be payable to them if the full number of shares to be
redeemed on such Redemption Date were actually redeemed. The shares of Series A
Convertible Preferred Stock required to be redeemed but not so redeemed shall
raman outstanding and entitled to all rights and preferences provided herein.
At any time thereafter when additional funds of the Corporation are legally
available for the redemption of such shares of Series A Convertible Preferred
Stock together with the accompanying Class A Common Stock, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem the balance of
such shares, or such portion thereof for which funds are then legally available,
on the basis set forth above.
7D. Redeemed or Otherwise Acquired Shares to be Retired. Any shares
---------------------------------------------------
of Series A Convertible Preferred Stock redeemed pursuant to this paragraph 7 or
otherwise acquired by the Corporation in any manner whatsoever shall be canceled
and shall not under any circumstances be reissued; and the Corporation may from
time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of Series A Convertible
Preferred Stock.
8. Amendments. No provision of these terms of the Series A Convertible
----------
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock.
9. Special Mandatory Conversion. (a) If any holder of shares of Series A
----------------------------
Convertible Preferred Stock is entitled or otherwise afforded the right to
exercise the right of participation (the "Right of Participation") as set forth
in Article V of that Certain Series A Convertible Preferred Stock and Class A
Common Stock Purchase Agreement between the Corporation and the Purchasers
listed on Schedule I thereto dated March 15, 1996 (the "Purchase Agreement"),
with respect to any equity financing (the "Equity Financing") of the Corporation
which would result in the reduction of the Series A Conversion Price, and (i)
the Equity Financing has been approved by the holders of at least fifty-one
percent (51%) in interest of the then outstanding shares of Series A Convertible
Preferred Stock (but excluding from such calculation any holders form whom the
right of Participation has been waived pursuant to subsection (iii) below), (ii)
the Corporation has fully complied in all respect with its obligations pursuant
to Article V of the Purchase Agreement in respect thereof, (iii) the provisions
of the Right of Participation set forth in Article V of the Purchase Agreement
have not been waived at the request of the Corporation
<PAGE>
by such holder, and (iv) the holder is not prohibited by government regulation
from participating in the Equity Financing, if such holder (a "Non-Participating
Holder") does not be exercise of such holder's Right of Participation to acquire
his Special Proportionate Percentage (as hereafter defined) of the Allocated
Offered Securities (as hereinafter defined) offered to the holders of the Series
A Convertible Preferred Stock in such Equity Financing (a "Mandatory Offering"),
a portion (the Convertible Preferred Stock shall automatically and without
further action on the part of such holder be converted effective subject to and
concurrently with consummation of the Mandatory Offering (the "Mandatory
Offering Date") as follows: the Non-Participating Portion of all shares of
Series A Convertible Preferred Stock held by such Non-Participating Holder shall
be converted into a corresponding number of shares of a newly created series of
Preferred Stock (having such number of shares as the Board of Directors may by
resolution fix) which such series shall be identified in all respect to the
Series A Convertible Preferred Stock, except that the conversion price of such
series shall be fixed immediately prior to the Mandatory Offering Date and shall
be subject to no further adjustments in a manner similar to that provided in
paragraph 6D. The Board of Directors shall take all necessary actions to
designate such new series. Upon such conversion, the shares of Series A
Convertible Preferred Stock so converted shall be canceled and not subject to
reissuance. As used in this paragraph 9, the following terms shall have the
following respect meanings:
(1) "Allocated Offered Securities" shall mean that portion of the
gross amount of Offered Securities which has expressly been allocated for
purchase by the holders of the Series A Convertible Preferred Stock as a group,
which allocation has been expressly approved by the holders of at least fifty-
one percent 51% in interest of the then outstanding shares of Series A
Convertible Preferred Stock (as contemplated by clause (i) of this paragraph
9(a)), it being understood that for purposes of this paragraph 9(a) that
Allocated Offered Securities may represent an amount of Offered Securities that
is less (but in no event greater) than the amount of Offered Securities which
the Corporation is otherwise required to offer to the holders of Series A
Convertible Preferred Stock pursuant to Article V of the Purchase Agreement; and
(2) "Special Proportionate Percentage" shall mean as to a holder of
Series A Convertible Preferred Stock, that percentage figure which expresses the
ratio which (x) the number of shares of outstanding Common Stock then owned by
such holder bears to (y) the aggregate number of shares of outstanding Common
Stock then owned by all holders of shares of Series A Convertible Preferred
Stock. For purposes solely of the computation required for determination of the
Special Proportionate Percentage, the holders of outstanding Series A
Convertible Preferred Stock shall be treated as having converted all such
outstanding Series A Convertible Preferred Stock into shares of Common Stock at
the rate at which such securities are convertible into Common Stock in effect at
the time of such Equity Financing.
<PAGE>
(3) "Non-Participating Portion" shall mean a percentage equal to 100
minus that percentage of its Special Proportionate Percentage as to which such
holder has, in fact, exercised its Right of Participation to acquire the
Allocated Offered Securities.
(b) The holder of any shares of Series A Convertible Preferred Stock
converted pursuant to paragraph 9(a) hereof, shall deliver to the Corporation
during regular business hours at the office of any transfer agent of the
Corporation for the Series A Convertible Preferred Stock, or at such other place
as may be designed by the Corporation, the certificate or certificates for the
shares so converted, duly endorsed or assigned in blank or to the Corporation.
As promptly as practicable thereafter, the Corporation shall issue and deliver
to such holder, at the place designated by such holder, a certificate or
certificates for the number of full shares of the new series of Preferred Stock
to which such holder is entitled. The person in whose name the certificate for
such new series of Preferred stock is to be issued shall be deemed to have
become a stockholder of record on the Mandatory Offering Date unless the
transfer books of the Corporation are closed on that date, in which event he
shall be deemed to have become a stockholder of record on the next succeeding
date on which the transfer books are open.
(c) In the event that at any time the Special Mandatory Conversion set
forth in this paragraph 9 shall not be effective as to shall shares of the
Series A Convertible Preferred Stock then outstanding, the Board of Directors
shall take all necessary actions to designate new series of Preferred Stock
(having such distribute designations and number of shares as the Board of
Directors may be resolution fix) on each such subsequent occasion that (i) any
Equity Financing occurs, and (ii) any holder of Series A Convertible Preferred
Stock does not by exercise of such holders' Right of Participation acquire his
Special Proportionate Percentage of the Allocated Offered Securities then so
offered to the holders of the Series A Convertible Preferred Stock. Each share
of such Non-Participating Holder's shares of Series A Convertible Preferred
Stock shall be converted into one share of such newly-created series of
Preferred Stock concurrently with the consummation of the subject Mandatory
Offering. Such new series of Preferred Stock shall be identical in all
respects, except with respect to the respective Conversion Price therein effect,
to the new series of Preferred Stock created pursuant to the provisions of
paragraph 9(a).
<PAGE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:
SIGNED UNDER THE PENALTIES OF PERJURY, this 15th day of March, 1996.
------- ----- --
Dominic Chan , *President/xxxxxxxxxx
Allen K. Deary , *Clerk/xxxxxxxxxxxxxx
*Delete the inapplicable words
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
================================================================================
I hereby approve the within Articles of Amendment, and the filing fee
in the amount of $8,306.84 having been paid said articles are deemed
--------
to have been filed with me this 15th day of March, 1996.
----- ----- --
Effective date:
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Peter B. Tarr, Esq.
------------------- --------
Hale and Dorr
------------- --------
60 State Street
--------------- --------
Boston, MA 02109
----------------- --------
Telephone (617) 526-6000
------------------------ --------
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-3126919
-------------------
__________ THE COMMONWEALTH OF MASSACHUSETTS
EXAMINER WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
_________ We, Dominic Chan ,*President/xxxxxx
------------
Name
Approved and Allen K. Deary , *Clerk/xxxxxxxxx
--------------
of Peritus Software Services, Inc. ,
-------------------------------
(Exact name of corporation)
located at: 304 Concord Road, Billerica, MA 01821-3485 ,
-------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3 and 4
-------
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held
on October 28, 1996, by vote of:
-----------------
5,060,303 shares of Class A Voting Common Stock of 5,778,602 shares
--------- --------------------------- ---------
outstanding, (type, class & series, if any)
76,602 shares of Class B Non-Voting Common Stock of 99,290 shares
------ ------------------------------- ------
outstanding, and (type, class & series, if any)
1,690,972 shares of Series A Convertible Preferred of 1,903,525
--------- ------------------------------ ---------
shares outstanding, (type, class & series, if any)
C [_]
P [_] xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx being
M [_] at least two-thirds of each type, class or series outstanding and
R.A. [_] entitled to vote thereon and of each type, class or series of stock
whose rights are adversely affected thereby:
*Article 3 is hereby amended as set forth herein.
---------
*Article 4 is hereby amended by deleting the provisions of said
---------
Article 4 commencing with the heading SERIES A CONVERTIBLE
PREFERRED STOCK and inserting in lieu thereof the provisions set
forth on the attached Continuation Sheet 4.
*Delete the inapplicable words. **Delete the inapplicable clause.
/1/For amendments adopted pursuant to Chapter 156B, Section 70.
/2/For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form
is insufficient, additions shall be set forth on one side only of
separate 8 1/2 x 11 sheets of paper with a left margin of ________
at least 1 inch. Additions to more than one article may be made on
a single sheet so long as each article requiring each addition
P.C. is clearly indicated.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common:
- --------------------------------------------------------------------------------
Class A Voting 9,828,313
- --------------------------------------------------------------------------------
Class B Non- 275,000
Voting
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
Series A 1,903,525
Convertible
- --------------------------------------------------------------------------------
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common:
- --------------------------------------------------------------------------------
Class A Voting 12,474,000
- --------------------------------------------------------------------------------
Class B Non- 275,000
Voting
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
Series A 1,903,525
Convertible
Preferred
- --------------------------------------------------------------------------------
Series B 1,818,182
Convertible
Preferred
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONTINUATION SHEET 4
--------------------
PREFERRED STOCK
1. Number of Shares. The Preferred shall consist of 3,721,707 shares,
----------------
1,903,525 of which shall be designated and known as "Series A Convertible
Preferred Stock" and 1,818,182 of which shall be designated and known as "Series
B Convertible Preferred Stock".
1. Voting.
------
2A. General. Except as may be otherwise provided in these terms of
-------
the Preferred Stock or by law, the Preferred Stock shall vote together with all
other classes and series of stock of the Corporation entitled to vote as a
single class on all actions to be taken by the stockholders of the Corporation,
including, but not limited to actions amending the Restated Articles of
Organization of the Corporation to increase the number of authorized shares of
any class of common stock (including, but not limited to, an increase in the
number of authorized shares of Class A Voting Common Stock, no par value (the
"Class A Common Stock") or any increase in the number of authorized shares of
Class B Non-Voting Common Stock" (the "Class B Non-Voting Common Stock") and,
collectively with the Class A Common Stock and any other classes of common
stock, the "Common Stock"). Each share of Preferred Stock shall entitle the
holder thereof to such number of votes per share on each such action as shall
equal the number of shares of Class A Common Stock (including fractions of a
share) into which each share of Preferred Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
----------
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the board of
Directors to a number in excess of nine (9).
2C. Board Seats. The holders of the Series A Convertible Preferred
-----------
Stock, voting as a separate class, shall be entitled to elect two (2) directors
of the Corporation. The holders of the Preferred Stock and the Common Stock,
voting together as a single class (with the Preferred Stock voting on an as
converted basis), shall be entitled to elect the remaining directors of the
Corporation. Notwithstanding the foregoing or anything else to the contrary
provided in the Restated Articles of Organization, as amended, if the
Corporation fails or refuses, for any reason or for no reason, to redeem on the
Redemption Date (as defined in paragraph 7) all of the then outstanding shares
of Preferred Stock in accordance with the terms and provisions of paragraph 7,
the holders of the Preferred Stock, voting as a separate class, shall be
entitled to elect a majority of the directors of the Corporation (provided,
--------
however, that two of such directors shall continue to be elected solely by
holders of Series A Convertible Preferred Stock, voting as a separate class).
Until such time as there are
<PAGE>
no longer any shares of Preferred Stock outstanding, any two directors shall
have the right to call a meeting of the Board of Directors or stockholders. At
any meeting (or in a written consent in lieu thereof) held for the purpose of
electing directors, the presence in person or by proxy (or the written consent)
of the holders of a majority of the shares of Series A Convertible Preferred
Stock then outstanding shall constitute a quorum of the Series A convertible
Preferred Stock for the election of directors to be elected solely by the
holders of the Series A Convertible Preferred Stock, and the presence in person
or by proxy (or written consent) of the holders of a majority of the shares of
Preferred Stock then outstanding shall constitute a quorum of the Preferred
Stock for the election of directors to be elected jointly by the holders of the
Preferred Stock and the Class A Common Stock. A vacancy in any directorship
elected by the holders of the Series A Convertible Preferred Stock shall be
filled only by vote or written consent of the holders of the Series A
Convertible Preferred Stock and a vacancy in the directorship elected jointly by
the holders of the Preferred Stock and the Class A Common Stock shall be filled
only by vote or written consent of the Preferred Stock and the Class A Common
Stock as provided above.
3. Dividends. The holders of the Series A Convertible Preferred Stock
---------
shall be entitled to receive, out of funds legally available therefor, when and
if declared by the Board of Directors, quarterly dividends (the "Series A
Dividends") at the rate per annum of (a) $0.3825 per share plus (b) 10% per
annum of all previously accrued but unpaid Series A Dividends from the preceding
March 15. The holders of Series B Convertible Preferred Stock shall be entitled
to receive, out of funds legally available therefor, when and if declared by the
Board of Directors, quarterly dividends (the "Series B Dividends" and, together
with the Series A Dividends, the "Accruing Dividends") at the rate per annum of
(a) $0.33 per share plus (b) 10% per annum of all previously accrued from day to
day, whether or not earned or declared, and shall be cumulative. The Board of
Directors shall have no obligation to declare any dividends.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation, whether voluntary or involuntary, the holders of the shares of
Preferred Stock shall be entitled, before any distribution or payment is made
upon any stock ranking on liquidation junior to the Preferred Stock, to be paid
an amount equal to the greater of (i) $3.825 in the case of the Series A
Convertible Preferred stock and $3.30 per share in the case of the Series B
Convertible Preferred Stock, plus, in the case of each share, an amount equal to
----
all Accruing Dividends unpaid thereon (whether or not declared) and any other
dividends declared but unpaid thereon, computed to the date payment thereof is
made available, minus, in the case of the Series A Convertible Preferred Stock
-----
only, the produce of (a) 0.366 multiplied by (b) the amount remaining for
distribution with respect to each share of Class A Common Stock after payment is
made to the holders of Preferred Stock pursuant to this subclause (i), or (ii)
such amount per share as would have been payable had each such share been
converted to Class A Common Stock pursuant to paragraph 6
<PAGE>
immediately prior to such liquidation, dissolution or winding up, and the
holders of Preferred Stock shall not be entitled to any further payment, such
amount payable with respect to one share of Preferred Stock being sometimes
referred to as the "Liquidation Preference Payment" and with respect to all
shares of Preferred Stock being sometimes referred to as the "Liquidation
Preference Payments". If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Preferred Stock shall be insufficient to permit payment to
the holders of Preferred Stock of the amount distributable as aforesaid, then
the entire assets of the Corporation to be so distributed shall be distributed
ratably among the holders of Preferred Stock. Upon any such liquidation,
dissolution or winding up of the Corporation, after the holders of Preferred
Stock shall have been paid in full the amounts to which they shall be entitled,
the remaining net assets of the Corporation may be distributed to the holders of
stock ranking on liquidation junior to the Preferred Stock. Written notice of
such liquidation, dissolution or winding up, stating a payment date, the amount
of the Liquidation Preference Payments and the place where said Liquidation
Preference Payments shall be payable, shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, not less than 20 days prior to the payment date stated therein, to the
holders of record of Preferred Stock, such notice to be addressed to each such
holder at its address as shown by the records o the Corporation. The
consolidation or merger of the Corporation into or with any other entity or
entities which results in the exchange of outstanding shares of the Corporation
for securities or other consideration issued or paid or caused to be issued or
paid by any such entity or affiliate thereof (other than a merger to
reincorporate the Corporation in a different jurisdiction), and the sale, lease,
abandonment, transfer or other disposition by the Corporation of all or
substantially all its assets, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of the provisions of this
paragraph 4. For purposes hereof, the Common Stock shall rank on liquidation
junior to the Preferred Stock.
5. Restrictions. (a) At any time when at least 1,860,854 shares of
------------
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law or
by the Restated Articles of Organization, as amended, and in addition to any
other vote required by law or the Restated Articles of Organization, as amended,
without the approval of the holders of at least a majority o the then
outstanding shares of Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class, the Corporation
will not:
(i) Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to both series of
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or increase the authorized amount of the
Preferred Stock or increase the authorized amount of any additional class or
series of shares of stock unless the same
<PAGE>
ranks junior to both series of preferred Stock as to the distribution of assets
on the liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into shares of Preferred Stock
or into shares of any her class or series of stock unless the same ranks junior
to both series of Preferred Stock as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, whether any such
creation, authorization or increase shall be by means of amendment to the
Restated Articles of Organization, as amended or by merger, consolidation or
otherwise;
(ii) Amend, alter or repeal its Amended and Restated Articles of
Organization if the effect would be detrimental or adverse in any manner with
respect to the rights of the holders of either series of Preferred Stock;
(iii) Pay any dividend or make any distribution on, any shares of
stock other than the Preferred Stock, except for dividends or other
distributions payable on the Common Stock solely in the form of additional
shares of Common Stock; or
(iv) Purchase or set aside any sums for the purchase of any shares
of stock other than the Series A Convertible Preferred Stock, or redeem or
otherwise acquire any shares of Preferred Stock except (A) as expressly
authorized in paragraph 7 hereof, (B) the purchase of up to 100,000 shares of
Common Stock (appropriately adjusted to reflect the occurrence of any event
described in subparagraph 6F) to be repurchased from Dominic K. Chan and sold to
employees of the Corporation at the same price, or (C) pursuant to a purchase
offer made pro rata to all holders of the shares of Preferred Stock on the basis
of the aggregate number of outstanding shares of each series of Preferred Stock
then held by each such holder.
(b) In addition, at any time when at least 951,763 shares of Series A
Convertible Preferred Stock are outstanding, except where the vote or written
consent of the holders of a greater number of shares of the Corporation is
required by law or by the Restated Articles of Organization, as amended, and in
addition to any other vote required by law or the Restated Articles of
Organization, as amended, without the approval of the holders of at least two-
thirds of the then outstanding shares of Series A Convertible Preferred Stock,
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a series, the Corporation will not:
(i) Consent to any liquidation, dissolution or winding up of the
Corporation or sell, lease, abandon, transfer or otherwise dispose of all or
substantially all its assets; or
(ii) Consolidate or merge into or with any other entity in which the
shares of Common Stock and Series A Convertible Preferred Stock of the
Corporation
<PAGE>
outstanding immediately prior to the close of the transaction represent, or are
converted into or exchanged for equity securities that represent, less than a
majority of the combined voting power of the equity securities of the surviving
or resulting entity immediately following the close of the transaction.
6. Conversions. The holders of shares of Series A Convertible Preferred
-----------
Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of this
----------------
paragraph 6, the holder of any share or shares of Preferred Stock shall have the
right, at its option at any time, to convert any such shares of Preferred Stock
(except that upon any liquidation of the Corporation the right of conversion
shall terminate at the close of business on the business day fixed for payment
of the amount distributable on the Preferred Stock) into such number of fully
paid and nonassessable shares of Class A Common Stock as is obtained by (i)
multiplying the number of shares of Preferred Stock so to be converted by the
Original Purchase Price of such shares and (ii) dividing the result by the
conversion price equal to the Original Purchase Price of such shares or, in case
an adjustment of such price has taken place pursuant to the further provisions
of this paragraph 6, then by the conversion price as last adjusted and in effect
at the date any share or shares of Preferred Stock are surrendered for
conversion (such price, or such price as last adjusted, being referred to as the
"Conversion Price"). The Original Purchase Price of each share of Series A
Convertible Preferred Stock is $2.80 and the Original Purchase Price of each
share of Series B convertible Preferred Stock is $3.30. Such rights of
conversion shall be exercised by the holder thereof by giving written notice
that the holder elects to convert a stated number of shares of Preferred Stock
into Class A Common Stock and by surrender of a certificate or certificates for
the shares so to be converted to the Corporation as its principal office (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of the Preferred Stock) at any time during
its usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Class A Common Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected. Promptly
--------------------------------------------------
after the receipt of the written notice referred to in subparagraph 6A and
surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered to the holder, registered in such name or names
as such holder may direct, a certificate or certificates for the number of whole
shares of Class A common Stock issuable upon the conversion of such share or
shares of Preferred Stock. To the extent permitted by law, such conversion
shall be deemed to have been effected and the Conversion Price shall be
determined as of the close of business on the date on which such written notice
shall have been received by the corporation and the certificate or certificates
for such share or shares shall have been surrendered as
<PAGE>
aforesaid, and at such time the rights of the holder of such share or shares of
Preferred Stock shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Class A Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of Preferred Stock into Class A Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Class A Common Stock issued upon such conversion.
At the time of each conversion, the Corporation shall pay in cash an amount
equal to all dividends, excluding Accruing Dividends, accrued and unpaid on the
shares of Preferred Stock surrendered for conversion to the date upon which such
conversion is deemed to take place as provided in subparagraph 6B. In case the
number of shares of Preferred Stock represented by the certificate or
certificates surrendered pursuant to subparagraph 6A exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the corporation, a new certificate or
certificates for the number of shares of Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Class A common Stock would, except for the provisions of the
first sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Preferred Stock for conversion an amount in cash equal
to the current market price of such fractional share as determined in good faith
by the Board of Directors of the Corporation.
6D. Adjustment of price Upon Issuance of Common Stock. Except as
-------------------------------------------------
provided in subparagraph 6E and subject to paragraph 9, if and whenever the
Corporation shall issue or sell, or is, in accordance with subparagraphs 6D(1)
through 6D(7), deemed to have issued or sold, any shares of Common Stock for a
consideration per share less than the Conversion Price of a series of Preferred
Stock in effect immediately prior to the time of such issue or sale, then,
forthwith upon such issue or sale, the Conversion Price of such series shall be
reduced to the price determined by dividing (i) an amount equal to the sum of
(a) the number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Conversion Price for such series
and (b) the consideration per share, if any, received by the Corporation upon
such issue or sale multiplied by the number of shares of Common Stock issued or
sold, by (ii) the total number of shares of Common Stock (or Common Stock
equivalent on an as converted basis) outstanding immediately after such issue or
sale.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to
6D(7) shall also be applicable:
<PAGE>
6D(1) Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or
exchangeable stock or securities being called "convertible Securities")
whether or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities (determined
by dividing (i) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of
such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale
of such Convertible Securities and upon the conversion or exchange thereof
by (ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be
less than the Conversion Price in effect immediately prior to the time of
the granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to have been
issued for such price per share as of the date of granting of such Options
or the issuance of such Convertible Securities and thereafter shall be
deemed to be outstanding. Except as otherwise provided in subparagraph
6D(3), no adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon exercise
of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
----------------------------------
Corporation shall in any manner issue (whether directly or by assumption in
a merger or otherwise) or sell any Convertible Securities, whether or not
the rights to exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the
total amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such
<PAGE>
Convertible Securities) shall be less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in subparagraph 6D(3), no
adjustment of the Conversion Price shall be made upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible Securities
is made upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been or are
to be made pursuant to other provisions of this subparagraph 6D, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
-----------------------------------------
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 6D(1), the
additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities referred to in subparagraph 6D(1) or 6D(2),
or the rate at which Convertible Securities referred to in subparagraph
6D(1) or 6D(2) are convertible into or exchangeable for Common Stock shall
change at any time (including, but not limited to, changes under or by
reason of provisions designed to protect against dilution), the Conversion
Price in effect at the time of such event shall forthwith be readjusted to
the Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold, but only if as
a result of such adjustment the Conversion Price then in effect hereunder
is thereby reduced; and on the termination of any such Option or any such
right to convert or exchange such Convertible Securities, the Conversion
Price then in effect hereunder shall forthwith be increased to the
Conversion Price which would have been in effect at the time of such
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or distributions upon the
Common Stock), Options or Convertible Securities, any Common Stock, Options
or Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold
without consideration.
<PAGE>
6D(5) Consideration for Stock. In case any shares of Common
-----------------------
Stock, Options or Convertible Securities shall be issued or sold for cash,
the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Corporation in connection therewith. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or sold for
a consideration other than cash; the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any Options shall be issued in connection
with the issue and sale of other securities of the Corporation, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereof such Options shall be
deemed to have been issued for such consideration as determined in good
faith by the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take a record
-----------
of the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities or (ii) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
6D(7) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Stock for the purpose of
this subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein to the
----------------------------------------
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance from and after
the date of filing of these terms of the Preferred Stock of up to an aggregate
of 2,835,695 shares (appropriately adjusted to reflect the occurrence of any
event described in subparagraph 6F) of Common Stock to directors, officers,
employees or consultants of the Corporation in connection with their service as
directors of the Corporation, their employment by the Corporation or their
retention as consultants by the Corporation, plus the issuance of up to 312,500
shares (appropriately adjusted to
<PAGE>
reflect the occurrence of any event described in subparagraph 6F) of Common
Stock issuable upon the exercise of warrants outstanding as of March 15, 1996,
plus such number of shares of Common Stock which are repurchased by the
Corporation from such persons after such date pursuant to contractual rights
held by the Corporation and at repurchase prices not exceeding the respective
original purchase prices paid by such persons to the Corporation therefor.
6F. Subdivision or Combination of Common Stock. In case the
------------------------------------------
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price of each series of Preferred Stock in effect
immediately prior to such subdivision shall be proportionately reduced, and,
conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Conversion Price of each series of
Preferred Stock in effect immediately prior to such combination shall be
proportionately increased. In the case of any such subdivision, no further
adjustment shall be made pursuant to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any capital
----------------------------------
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Preferred Stock shall thereupon have the right to receive, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Class A Common Stock immediately theretofore receivable upon the conversion of
such share or shares of Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Class A Common Stock equal to the number of shares
of such Common Stock, immediately theretofore receivable upon such conversion
had such reorganization or reclassification not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Conversion Price) shall
hereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.
6H. Failure to Redeem. If the Corporation fails, for any reason or
-----------------
for no reason, to redeem on the Redemption Date (as defined in paragraph 7) all
of the then outstanding shares of Preferred Stock in accordance with the terms
and conditions of paragraph 7, the Conversion Price of each series of Preferred
Stock then in effect shall be immediately reduced to an amount equal to 90%
thereof. Thereafter, until such redemption has been made in full in accordance
with such terms and conditions, each such Conversion Price shall be further
reduced on the
<PAGE>
90th day following the Redemption Date and at the end of each 90-day period
thereafter to an amount equal to 90% of such Conversion Price in effect
immediately prior to each such reduction.
6I. Notice of Adjustment. Upon any adjustment of the Conversion
--------------------
Price, then and in each such case the Corporation shall give written notice
thereof, by delivery in person, certified or registered mail, return receipt
requested, telecopier or telex, addressed to each holder of shares of Preferred
Stock at the address of such holder as shown on the books of the Corporation,
which notice shall state the Conversion Price resulting from such adjustment,
setting forth in reasonable detail the method upon which such calculation is
based.
6J. Other Notices. In case at any time:
-------------
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of its
Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
--------
holders of its Common Stock any additional shares of stock of any class or other
rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into another entity or entities, or a sale, lease,
abandonment, transfer or other disposition of all or substantially all its
assets; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Preferred Stock at the address
of such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, at
least 20 days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
<PAGE>
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up, as the case may be.
6K. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Preferred Stock as herein provided, such number
of shares of Class A common Stock as shall then be issuable upon the conversion
of all outstanding shares of Preferred Stock. The Corporation covenants that
all shares of Class A Common Stock which shall be so issued shall be duly and
validly issued and fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof, and, without limiting the
generality of the foregoing, the Corporation covenants that it will from time to
time take all such action as may be requisite to assure that the par value per
share of the Class A common Stock is at all times equal to or less than the
Conversion Price in effect at the time. The Corporation will take all such
action as may be necessary to assure that all such shares of Class A Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirement of any national securities exchange upon which the common
Stock may be listed. The Corporation will not take any action which results in
any adjustment of the Conversion Price if the total number of shares of Class A
Common Stock issued and issuable after such action upon conversion of the
Preferred Stock would exceed the total number of shares of Class A Common Stock
then authorized by the Restated Articles of Organization, as amended.
6L. No Reissuance of Preferred Stock. Shares of Preferred Stock
--------------------------------
which are converted into shares of Class A Common Stock as provided herein shall
not be reissued.
6M. Issue Tax. The issuance of certificates for shares of Class A
---------
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Preferred Stock which is being
converted.
6N. Closing Books. The Corporation will at no time close its
-------------
transfer books against the transfer of any Preferred Stock or of any shares of
Class A Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
6O. Definition of Common Stock. As used in this paragraph 6, the
--------------------------
term "Common Stock" shall mean and include the Corporation's authorized Class A
<PAGE>
Common Stock, no par value per share, and the Corporation's Class B common
Stock, no par value per share (each as constituted on the date of filing of
these terms of the Preferred Stock), unless otherwise specifically limited to
"Class A Common Stock", and shall also include any capital stock of any class of
the Corporation thereafter authorized which shall not be limited to a fixed sum
or percentage in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided that the
shares of Class A common Stock receivable upon conversion of shares of Preferred
Stock shall include only shares designated as Class A Common Stock of the
Corporation on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph 6G.
6P. Mandatory Conversion. If at any time the Corporation shall
--------------------
effect a firm commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the public shall be at
least $15 million and (ii) the price paid by the public for such shares shall be
at least $5.60 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Preferred Stock shall automatically convert to shares of
Class A Common Stock on the basis set forth in this paragraph 6. Holders of
shares of Preferred Stock so converted may deliver to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing so such holders) during its usual
business hours, the certificate or certificates for the shares so converted. As
promptly as practicable thereafter, the Corporation shall issue and deliver to
such holder a certificate or certificates for the number of whole shares of
Class A Common Stock to which such holder is entitled, together with any cash
dividends and payment in lieu of fractional shares to which such holder may be
entitled pursuant to subparagraph 6C. Until such time as a holder of shares of
Preferred Stock shall surrender his or its certificates therefor as provided
above, such certificates shall be deemed to represent the shares of Class A
common Stock to which such holder shall be entitled upon the surrender thereof.
7. Redemption. The shares of Preferred Stock shall be redeemed as
----------
follows:
7A. Optional Redemption. The Corporation shall not have the right to
-------------------
call or redeem at any time all or any shares of Preferred Stock. Subject to the
conditions set forth in this paragraph 7, upon receiving notice (the "Notice")
from the holders of a majority of the then outstanding shares of Preferred
Stock, the Corporation shall redeem, to the extent permitted by law, all of the
shares of the then outstanding shares of Preferred Stock in three annual
installments as follows:
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares of
Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- ------------------ --------------------------
<S> <C>
March 15, 2001 33-1/3% of all the shares of each series
of Preferred Stock Outstanding on March 15,
2001
March 15, 2002 50% of all the shares of each series of
Preferred Stock outstanding on March 15,
2002.
March 15, 2003 100% of all the shares of each series of
Preferred Stock outstanding on march 15,
2003.
</TABLE>
7B. Redemption Price and Payment. Notwithstanding anything to the
----------------------------
contrary in this paragraph 7, the Corporation shall only be obligated to redeem
the Series A Convertible Preferred Stock with respect to each holder thereof it,
at the time of such redemption, the holder also presents for redemption 0.366
shares of Class A Common Stock for each share of Series A Convertible Preferred
Stock to be redeemed. The Corporation shall be required to redeem the Preferred
Stock according to the schedule se forth above and the accompanying Class A
Common Stock presented for redemption, if any. The shares of Preferred Stock to
be redeemed on any Redemption Date shall be redeemed by paying for each share in
cash an amount equal to the Original Purchase Price for such share plus, in the
case of each share, an amount equal to all dividends, including Accruing
Dividends, declared but unpaid thereon, computed to such Redemption Date, such
amount being referred to as the "Redemption Price". The shares of Class A
Common Stock to be redeemed on any Redemption Date shall be redeemed by paying
for each share in cash an amount equal to $2.80 per share. Such payments shall
be made in full on the applicable Redemption Date to the holders entitled
thereto. Notwithstanding the foregoing, upon delivery of a written notice to
the Company (a "Tax Notice"), holders of a majority of the Series A Convertible
Preferred Stock shall have the right, on any of the Redemption Dates set forth
above, to sell additional shares of Series A Convertible Preferred Stock to the
Company so that such redemption will be treated as an "exchange" under Sections
302(a) and (b) of the Internal Revenue code of 1986, as amended; provided,
however, that the Corporation shall only be obligated to redeem the Series A
Convertible Preferred Stock with respect to each holder if, at the time of such
redemption, the holder also presents for redemption 0.366 shares of Class A
common Stock for each share of Series A Convertible Preferred Stock to be
redeemed. The Corporation shall be required to redeem such accompanying Class A
Common Stock presented for redemption. If holders of a majority of the Series A
Convertible Preferred Stock deliver a Tax Notice to the Company as provided
above,
<PAGE>
the company shall redeem each share of Series A Convertible Preferred Stock set
forth in the Tax Notice by paying the Redemption Price for each such share of
Series A Convertible Preferred Stock and a price of $2.80 per share for each
accompanying share of Class A Common Stock. At its election, the Company may
satisfy its obligation to redeem the shares of Series A Convertible Preferred
Stock set forth in the Tax Notice and the accompanying shares of Class A Common
Stock by delivering to the holders of the Series A Convertible Preferred Stock a
promissory note of the Company, bearing interest at 10%, for the full amount of
the Redemption Price of the shares set forth in the Tax Notice the amount due
with respect to the accompanying shares of Class A common Stock to be redeemed,
and due and payable on such Redemption Dates as the shares set forth in the Tax
Notice could have been redeemed pursuant to paragraph 7A; provided, however,
-------- -------
that the ability of the Company to issue a promissory note to cover the redeemed
shares of Series A Convertible Preferred Stock set forth in the Tax Notice and
the accompanying shares of Class A common Stock to be redeemed will be subject
to compliance by the Company with the General Corporation law of the
Commonwealth of Massachusetts.
7C. Redemption Mechanics. At least 20 but not more than 30 days
--------------------
prior to each Redemption Date, written notice (the "Redemption Notice") shall be
given by the Corporation by delivery in person, certified or registered mail,
return receipt requested, telecopier or telex, to each holder of record (at the
close of business on the business day next preceding the day on which the
Redemption Notice is given) of shares of Preferred Stock notifying such holder
of the redemption and specifying the Redemption Price, such Redemption Date, the
number of shares of Preferred Stock to be redeemed from such holder (computed on
a pro rata basis in accordance with the number of such shares held by all
holders thereof), the number of accompanying shares of Class A Common Stock to
be redeemed from such holder, if any, and the place where said Redemption Price
shall be payable. The Redemption Notice shall be addressed to each holder at
his address as shown by the records of the Corporation. From and after the
close of business on a Redemption Date, unless there shall have been a default
in the payment of the Redemption Price, all rights of holders of shares of
Preferred Stock (except the right to receive the Redemption Price) shall cease
with respect to the shares to be redeemed on such Redemption Date, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Preferred Stock and
the accompanying Class A common Stock, if applicable, on a Redemption Date are
insufficient to redeem the total number of shares of preferred Stock and the
accompanying Class A Common Stock to be redeemed on such Redemption Date, the
holders of such shares shall share ratably in any funds legally available for
redemption of such shares according to the respective amounts which would be
payable to them if the full number of shares to be redeemed on such Redemption
Date were actually redeemed. The shares of Preferred Stock required to be
redeemed but not so redeemed shall remain outstanding and entitled to all rights
and
<PAGE>
preferences provided herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of such shares of Preferred
Stock together with the accompanying Class A Common Stock, if applicable, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above.
7D. Redeemed or Otherwise Acquired Shares to be Retired. Any shares
---------------------------------------------------
of Preferred Stock redeemed pursuant to this paragraph 7 or otherwise acquired
by the Corporation in any manner whatsoever shall be canceled and shall not
under any circumstances be reissued; and the Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce accordingly
the number of authorized shares of either or both series of Preferred Stock.
8. Amendments. No provision of these terms of the Preferred Stock may be
----------
amended, modified or waived without the written consent or affirmative vote of
the holders of at least a majority of the then outstanding shares of Preferred
Stock.
9. Special Mandatory Conversion of Preferred Stock. (a) If any holder of
-----------------------------------------------
shares of Preferred Stock is entitled or otherwise afforded the right to
exercise the right of participation (the "Right of Participation") as set forth
in Article V of that certain Series B Convertible Preferred Stock Purchase
Agreement of the Corporation dated on or about October 28, 1996 (the "Purchase
Agreement"), with respect to any equity financing (the "Equity Financing")( of
the Corporation which would result in the reduction of the Conversion Price of
either series of Preferred Stock (a "Diluted Series"), and (i) the Equity
Financing has been approved by the holders of at least fifty-one percent (51%)
in interest of the then outstanding shares of the Diluted Series (but excluding
from such calculation any holders for whom the Right of Participation has been
waived pursuant to subsection (iii) below), (ii) the corporation has fully
complied in all respects with its obligations pursuant to Article V of the
Purchase Agreement in respect thereof, (iii) the provisions of the Right of
Participation set forth in Article V of the Purchase Agreement have not been
waived at the request of the Corporation by such holder, and (iv) the holder is
not prohibited by government regulation from participating in the Equity
Financing, if such holder (a "Non-Participating Holder") does not by exercise of
such holder's Right of Participation to acquire his Special Proportionate
Percentage (as hereinafter defined) of the Allocated Offered Securities (as
hereinafter defined) offered to the holders of the Preferred Stock in such
Equity Financing (a "Mandatory Offering"), a portion (the "Non-Participating
Portion") of such holder's shares of the Diluted Series shall automatically and
without further action on the part of such holder be converted effective subject
to and concurrently with consummation of the Mandatory Offering (the "Mandatory
Offering Date") as follows: the Non-Participating Portion of all shares of
Preferred Stock of the Diluted Series held by such Non-Participating Holder
shall be converted into a corresponding number of shares of a newly created
series of
<PAGE>
Preferred Stock (having such number of shares as the Board of Directors may by
resolution fix) which such series shall be identical in all respects to the
Preferred Stock of the Diluted Series, except that the conversion price of such
series shall be fixed immediately prior to the Mandatory Offering Date and shall
be subject to no further adjustments in a manner similar to that provided in
paragraph 6D. The Board of Directors shall take all necessary actions to
designate such new series. Upon such conversion, the shares of Preferred Stock
so converted shall be canceled and not subject to reissuance. As used in this
paragraph 9, the following terms shall have the following respective meanings:
(1) "Allocated Offered Securities" shall mean that portion of the
gross amount of Offered Securities which has expressly been allocated for
purchase by the holders of the Preferred Stock as a group, which allocation has
been expressly approved by the holders of at least fifty-one percent 51% in
interest of the then outstanding shares of the Diluted Series (as contemplated
by clause (i) of this paragraph 9(a)), it being understood that for purposes of
this paragraph 9(a) that Allocated Offered Securities may represent an amount of
Offered Securities that is less (but in no event greater) than the amount of
Offered Securities which the Corporation is otherwise required to offer to the
holders of Preferred Stock pursuant to Article V of the Purchase Agreement; and
(2) "Special Proportionate Percentage" shall mean as to a holder of
Preferred Stock, that percentage figure which expresses the ratio which (x) the
number of shares of outstanding Common Stock then owned by such holder bears to
(y) the aggregate number of shares of outstanding Common Stock then owned by all
holders of shares of preferred Stock. For purposes solely of the computation
required for determination of the Special Proportionate Percentage, the holders
of outstanding Preferred Stock shall be treated as having converted all such
outstanding Preferred Stock into shares of Common Stock at the rate at which
such securities are convertible into Common Stock in effect at the time of such
Equity Financing.
(3) "Non-Participating Portion" shall mean a percentage equal to 100
minus that percentage of its Special Proportionate percentage as to which such
- -----
holder has, in fact, exercised its Right of Participation to acquire the
Allocated Offered Securities.
(b) The holder of any shares of Preferred Stock converted pursuant to
paragraph 9(a) hereof, shall deliver to the Corporation during regular business
hours at the office of any transfer agent of the Corporation for such series of
Preferred stock, or at such other place as may be designated by the Corporation,
the certificate or certificates for the shares so converted, duly endorsed or
assigned in blank or to the Corporation. As promptly as practicable thereafter,
the Corporation shall issue and deliver to such holder, at the place designated
by such holder, a certificate or certificates for the number of full shares of
the new series of Preferred Stock to which
<PAGE>
such holder is entitled. The person in whose name the certificate for such new
series of Preferred Stock is to be issued shall be deemed to have become a
stockholder of record on the Mandatory Offering Date unless the transfer books
of the Corporation are closed on that date, in which event he shall be deemed to
have become a stockholder of record on the next succeeding date on which the
transfer books are open.
(c) In the event that at any time the Special Mandatory Conversion set
forth in this paragraph 9 shall not be effective as to all shares of the
Preferred Stock then outstanding, the Board of Directors shall take all
necessary actions to designate new series of Preferred Stock (having such
distinctive designations and number of shares as the Board of Directors may be
resolution fix) on each such subsequent occasion that (i) any Equity Financing
occurs, and (ii) any holder of Preferred Stock of a Diluted Series does not be
exercise of such holder's Right of participation acquire his Special
Proportionate Percentage of the Allocated Offered Securities then so offered to
the holders of the Preferred Stock. Each share of such Non-Participating
Holder's shares of Preferred Stock of the Diluted Series shall be converted into
one share of the applicable newly-created series of Preferred Stock concurrently
with the consummation of the subject Mandatory Offering. Such new series of
Preferred Stock shall be identical in all respects, except with respect to the
respective Conversion Price then in effect, to the new series of Preferred Stock
created pursuant to the provisions of paragraph 9(a).
<PAGE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:
SIGNED UNDER THE PENALTIES OF PERJURY, this 28th day of October, 1996.
------ ------- --
Dominic Chan ,*President/xxxxxxxxxxxx
Allen K. Deary ,*Clerk/xxxxxxxxxxxxxxxx
*Delete the inapplicable words
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
======================================================================
I hereby approve the within Articles of Amendment, and the filing fee
in the amount of $4,563.87 having been paid, said article is deemed to
--------
have been filed with me this 28th day of October, 1996.
---- ------- --
Effective date:
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Peter B. Tarr, Esq.
------------------- --------
Hale and Dorr
------------- --------
60 State Street
--------------- --------
Boston, MA 02109
----------------- --------
(617) 526-6639
-------------- --------
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-3126919
------------------
________ THE COMMONWEALTH OF MASSACHUSETTS
Examiner WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
________
Name We, Dominic Chan ,*President/xxxxxx
------------
Approved
and Allen K. Deary , *Clerk/xxxxxxxxx
--------------
of Peritus Software Services, Inc. ,
-------------------------------
(Exact name of corporation)
located at: 304 Concord Road, Billerica, MA 01821-3485 ,
-------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3
--
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting
held on December 9, 1996, by vote of:
----------------
Class A Voting Common Stock,
Series A Convertible Preferred Stock,
And Series B Convertible Preferred
7,451,635 shares of Stock, voting together as a single class of
--------- ----------------------------------------
9,508,309 shares outstanding, (type, class & series, if any)
---------
shares of of shares outstanding, and
type, class & series, if any)
shares of of shares outstanding,
(type, class & series, if any)
C [_] **being at least two-thirds of each type, class or series
M [_] outstanding and entitled to vote thereon: xxxxxxxxxxxxxxxxxxxxxxx
R.A. [_] xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Article 3 is hereby amended as set forth below.
*Delete the inapplicable words. **Delete the inapplicable clause.
/1/For amendments adopted pursuant to Chapter 156B, Section 70.
/2/For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this
form is insufficient, additions shall be set forth on one side
only of separate 8 1/2 x 11 sheets of paper with a left margin of
at least 1 inch. Additions to more than one article may
________ be made on a single sheet so long as each article requiring each
P.C. addition is clearly indicated.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: -------------- --------
- --------------------------------------------------------------------------------
Class A Voting: 12,474,000
- --------------------------------------------------------------------------------
Class B Non- 275,000
Voting:
- --------------------------------------------------------------------------------
Preferred: Preferred: -------------- --------
- --------------------------------------------------------------------------------
Series A 1,903,525
Convertible:
- --------------------------------------------------------------------------------
Series B 1,818,182
Convertible:
- --------------------------------------------------------------------------------
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common:
- --------------------------------------------------------------------------------
Class A Voting: 13,020,000
- --------------------------------------------------------------------------------
Class B Non- 275,000
Voting:
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
Series A 1,903,525
Convertible:
- --------------------------------------------------------------------------------
Series B 1,818,182
Convertible:
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:
SIGNED UNDER THE PENALTIES OF PERJURY, this 12th day of December, 1996.
---- -------- ---
Dominic Chan , *President/xxxxxxxxxxxx
Allen K. Deary , *Clerk/xxxxxxxxxxxxxxxx
*Delete the inapplicable words
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
======================================================================
I hereby approve the within Articles of Amendment, and the filing fee
in the amount of $546.00 having been paid, said article is deemed to
------
have been filed with me this 16th day of December, 1996.
---- -------- --
Effective date:
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Peter B. Tarr, Esq.
------------------- --------
Hale and Dorr
------------- --------
60 State Street
--------------- --------
Boston, MA 02109
----------------- --------
--------
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-3126919
-------------------
________ THE COMMONWEALTH OF MASSACHUSETTS
Examiner WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
________
Name We, Douglas A. Catalano ,*President/xxxxxx
-------------------
Approved
and Allen K. Deary , *Clerk/xxxxxxxxx
--------------
of Peritus Software Services, Inc. ,
------------------------------
(Exact name of corporation)
located at: 304 Concord Road, Billerica, MA 01821-3485 ,
-------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3
--
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting
held on February 28, 1997, by vote of:
------------------
5,216,078 shares of Class A Voting Common Stock of 6,148,617
--------- ---------------------------- ---------
shares outstanding, (type, class & series, if any)
1,891,499 shares of Series A Convertible Preferred Stock of
--------- ------------------------------------
1,903,525 shares outstanding, and (type, class & series, if any)
---------
1,243,533 shares of Series B Convertible Preferred Stock of
--------- ------------------------------------
1,818,182 shares outstanding. (type, class & series, if any)
---------
C [_]
P [_] xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx being
M [_] at least two-thirds of each type, class or series outstanding and
R.A. [_] entitled to vote thereon and of each type, class or series of
stock whose rights are adversely affected thereby:
Article 3 is hereby amended as set forth below.
*Delete the inapplicable words. **Delete the inapplicable clause.
/1/For amendments adopted pursuant to Chapter 156B, Section 70.
/2/For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this
form is insufficient, additions shall be set forth on one side
only of separate 8 1/2 x 11 sheets of paper with a left margin of
________ at least 1 inch. Additions to more than one article may be made
P.C. on a single sheet so long as each article requiring each addition
is clearly indicated.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common:
- --------------------------------------------------------------------------------
Class A Voting: 13,020,000
- --------------------------------------------------------------------------------
Class B Non- 275,000
Voting:
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
Series A 1,903,525
Convertible:
- --------------------------------------------------------------------------------
Series B 1,818,182
Convertible:
- --------------------------------------------------------------------------------
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common:
- --------------------------------------------------------------------------------
Class A Voting: 14,020,000
- --------------------------------------------------------------------------------
Class B Non- 275,000
Voting:
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
Series A 1,903,525
Convertible:
- --------------------------------------------------------------------------------
Series B 1,818,182
Convertible:
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:
SIGNED UNDER THE PENALTIES OF PERJURY, this 28th day of February, 1997.
---- -------- ---
Douglas A. Catalano , *President/xxxxxxxx
- -------------------
Allen K. Deary , *Clerk/xxxxxxxxxxxx
- --------------
*Delete the inapplicable words
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
=====================================================================
I hereby approve the within Articles of Amendment, and the filing fee
in the amount of $1,000.00 having been paid, said article is deemed to
--------
have been filed with me this 28th day of February, 1997.
---- -------- --
Effective date:
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Peter B. Tarr, Esq.
------------------- --------
Hale and Dorr
------------- --------
60 State Street
--------------- --------
Boston, MA 02109
----------------- --------
(617) 526-6000
-------------- --------
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-3126919
-----------------
EXHIBIT 3.2
THE COMMONWEALTH OF MASSACHUSETTS
__________ WILLIAM FRANCIS GALVIN
Examiner Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
___________
Name
Approved
We, Douglas A. Catalano
-----------------------------------------------------, /*/President
and Allen K. Deary
--------------------------------------------------------, /*/Clerk
of Peritus Software Services, Inc.
------------------------------------------------------------------ ,
(Exact name of corporation)
located at 304 Concord Road, Billerica, MA 01821-3485
---------------------------------------------------------- ,
(Street address of corporation Massachusetts)
do hereby certify that the following Restatement of the Articles of
Organization was duly adopted at a meeting held on _________________
____________, 1997 by a vote of the directors/or:
<TABLE>
<CAPTION>
<S> <C> <C>
_________ shares of Common Stock of ______________ shares outstanding,
-----------------------------------
(type, class & series, if any)
_________ shares of Series A Convertible Preferred of ______________ shares outstanding, and
------------------------------
(type, class & series, if any)
_________ shares of Series B Convertible Preferred of ______________ shares outstanding, and
------------------------------
(type, class & series, if any)
</TABLE>
/**/being at least two-thirds of each type, class or series
outstanding and entitled to vote thereon and of each type, class or
series of stock whose rights are adversely affected thereby:
C [_] ARTICLE I
P [_]
M [_] The name of the corporation is:
R.A. [_]
Peritus Software Services, Inc.
ARTICLE II
The purpose of the corporation is to engage in the following
business activities:
1. To develop, create, market, sell, license, acquire, service,
provide consultation services for, and generally deal in software
engineering and software-related products; and
2. To carry on any business or other activity permitted by the laws
of The Commonwealth of Massachusetts to a corporation organized
under Chapter 156B of the Massachusetts General Laws.
/*/Delete the inapplicable words. /**/Delete the inapplicable clause.
NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS
INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON SEPARATE 8 1/2 X 11
SHEETS OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO
________ MORE THAN ONE ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH
P.C ARTICLE REQUIRING EACH ADDITION IS CLEARLY INDICATED.
<PAGE>
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: 50,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred: 5,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
SEE CONTINUATION SHEET 4A
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
NONE
ARTICLE VI
/**/Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
SEE CONTINUATION SHEET 6A
/**/If there are no provisions state "None".
NOTE: THE PRECEDING SIX (6) ARTICLES ARE CONSIDERED TO BE PERMANENT AND MAY
ONLY BE CHANGED BY FILING APPROPRIATE ARTICLES OF AMENDMENT.
<PAGE>
CONTINUATION SHEET 4A
---------------------
The total number of shares of all classes of stock which Peritus Software
Services, Inc. (the "Company") shall have authority to issue is 55,000,000
shares, consisting of (i) 50,000,000 shares of Common Stock, $.01 par value per
share ("Common Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.01 par
value per share ("Preferred Stock").
At the same time as the filing of these Restated Articles of Organization
becomes effective, (i) the class of the Company's capital stock previously
designated Class B Non-Voting Common Stock and (ii) the two series of the
Company's capital stock previously designated Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock, in each case no par value per
share, and any shares of any such class or series issued and outstanding prior
to the effectiveness of such filing, shall, automatically and with no further
action necessary by or on behalf of any party, be converted into and be deemed
to represent Common Stock, according to the following: each share of Class B
Non-Voting Common Stock shall be converted into and deemed to represent one
share of Common Stock, with fractional shares of any holder rounded upward to
the nearest whole share; each share of Series A Convertible Preferred Stock
shall be converted into and deemed to represent one share of Common Stock, with
fractional shares of any holder rounded upward to the nearest whole share; and
each share of Series B Convertible Preferred Stock shall be converted into and
deemed to represent one share of Common Stock, with fractional shares of any
holder rounded upward to the nearest whole share. Upon the occurrence of the
conversions described in the preceding sentence, the certificates representing
the Class B Non-Voting Common Stock, Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock shall be deemed to represent the number of
shares of Common Stock determined pursuant to the preceding sentence; no shares
of Class B Non-Voting Common Stock, Series A Convertible Preferred Stock or
Series B Convertible Preferred Stock shall be recognized as outstanding on the
books of the Company for any purposes; and the Class B Non-Voting Common Stock,
Series A Convertible Preferred Stock and Series B Convertible Preferred stock
shall be eliminated.
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Company.
A. COMMON STOCK
------------
1. General. The voting, dividend and liquidation rights of the holders
-------
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
<PAGE>
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Company available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Up to 5,000,000 shares of Preferred Stock may be issued from time to time
in one or more series, each of such series to have such terms as stated or
expressed herein and in the resolution or resolutions or vote or votes providing
for the issue of such series adopted by the Board of Directors of the Company as
hereinafter provided. Any shares of Preferred Stock which may be redeemed,
purchased or acquired by the Company may be reissued except as otherwise
provided by law. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for purposes of voting by classes unless
expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions or vote or
votes providing for the issue of the shares thereof, to determine and fix such
voting powers, full or limited, or no voting powers, and such designations,
preferences and qualifications, limitations or restrictions thereof, including
without limitation thereof, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be stated and expressed in such
resolutions or votes, all to the fullest extent now or hereafter permitted by
Chapter 156B of the Massachusetts General Laws. Without limiting the generality
of the foregoing, the resolutions or votes providing for issuance of any series
of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. No vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of the Articles
of Organization, the right to have such vote being expressly waived by all
present and future holders of the capital stock of the Company.
<PAGE>
CONTINUATION SHEET 6A
---------------------
a. The directors may make, amend, or repeal the by-laws in whole or in
part, except with respect to any provision of such by-laws which by law or these
Articles or the by-laws requires action by the stockholders.
b. Meetings of the stockholders of the Company may be held anywhere in
the United States.
c. The Company shall have the power to be a partner in any business
enterprise which the Company would have the power to conduct by itself.
d. Except as provided in Item 4 of these Restated Articles of
Organization (and the Continuation Sheet 4A referred to therein), as amended,
the Company, by vote of a majority of the stock outstanding and entitled to vote
thereon (or if there are two or more classes of stock entitled to vote as
separate classes, then by vote of a majority of each such class of stock
outstanding), may (i) authorize any amendment to its Articles of Organization
pursuant to Section 71 of Chapter 156B of the Massachusetts General Laws, as
amended from time to time, (ii) authorize the sale, lease or exchange of all or
substantially all of its property and assets, including its goodwill, pursuant
to Section 75 of Chapter 156B of the Massachusetts General Laws, as amended from
time to time, and (iii) approve an agreement of merger or consolidation pursuant
to Section 78 of Chapter 156B of the Massachusetts General Laws, as amended from
time to time. Notwithstanding any other provision of law, these Restated
Articles of Organization or the by-laws of the Company, each as amended, and
notwithstanding the fact that a lesser proportion or percentage may be specified
by law, the affirmative vote of the holders of at least two-thirds of the stock
outstanding and entitled to vote thereon (or if there are two or more classes of
stock entitled to vote as separate classes, then by a vote of at least two-
thirds of each such class of stock outstanding) shall be required to amend or
repeal, or to adopt any provision inconsistent with, sections d, e and g of this
Continuation Sheet 6A.
e. Except to the extent that Chapter 156B of the Massachusetts General
Laws prohibits such elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Company shall be personally
liable to the Company or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the Company
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
f. Chapter 110F of the Massachusetts General Laws, as it may be amended
from time to time, shall apply to the Company from and after such time as the
Company's Common Stock shall be registered under Section 12 of the Securities
Exchange Act of 1934.
<PAGE>
g. INDEMNIFICATION
---------------
1. Actions, Suits and Proceedings. The Company shall indemnify each
------------------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was, or has agreed to become, a director or officer of the Company, or is or was
serving, or has agreed to serve, at the request of the Company, as a director or
officer of, or in a similar capacity with, another organization or in any
capacity with respect to any employee benefit plan of the Company (each such
person being referred to hereafter as an "Indemnitee"), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees), judgments and fines incurred by him or on
his behalf in connection with such action, suit or proceeding and any appeal
therefrom, unless the Indemnitee shall be finally adjudicated in such action,
suit or proceeding not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Company or, to the extent such
matter relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
Notwithstanding anything to the contrary in this Article, except as set forth in
Section 6 below, the Company shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
the Indemnitee unless the initiation thereof was approved by the Board of
Directors of the Company. Notwithstanding anything to the contrary in this
Article, the Company shall not indemnify an Indemnitee to the extent such
Indemnitee is reimbursed from the proceeds of insurance, and in the event the
Company makes any indemnification payments to an Indemnitee and the Indemnitee
is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Company to the extent of
such insurance reimbursement.
2. Settlements. The right to indemnification conferred in this Article
-----------
shall include the right to be paid by the Company for amounts paid in settlement
of any such action, suit or proceeding and any appeal therefrom, and all
expenses (including attorneys' fees) incurred in connection with such
settlement, pursuant to a consent decree or otherwise, unless and to the extent
it is determined pursuant to Section 5 below that the Indemnitee did not act in
good faith in he reasonable belief that his action was in the best interests of
the Company or, to the extent such matter relates to service with respect to an
employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan.
3. Notification and Defense of Claim. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the Company in writing as
soon as practicable of any action, suit, proceeding or investigation for which
indemnity will or could be sought. With respect to any action, suit, proceeding
or investigation of which the Company is so notified, the Company will be
entitled to participate therein.
<PAGE>
at its own expense and/or to assume the defense thereof at its own expense, with
legal counsel reasonably acceptable to the Indemnitee. After notice from the
Company to the Indemnitee of its election so to assume such defense, the Company
shall not be liable to the Indemnitee for any legal or other expenses
subsequently incurred by the Indemnitee in connection with such claim, other
than as provided below in this Section 3. The Indemnitee shall have the right to
employ his own counsel in connection with such claim, but the fees and expenses
of such counsel incurred after notice from the Company of its assumption of the
defense thereof shall be at the expense of the Indemnitee unless (i) the
employment of counsel by the Indemnitee has been authorized by the Company, (ii)
counsel to the Indemnitee shall have reasonably concluded that there may be a
conflict of interest or position on any significant issue between the Company
and the Indemnitee in the conduct of the defense of such action or (iii) the
Company shall not in fact have employed counsel to assume the defense of such
action, in each of which cases the fees and expenses of counsel for the
Indemnitee shall be at the expense of the Company, except as otherwise expressly
provided by this Article. The Company shall not be entitled, without the consent
of the Indemnitee, to assume the defense of any claim brought by or in the right
of the Company or as to which counsel for the Indemnitee shall have reasonably
made the conclusion provided for in clause (ii) above.
4. Advance of Expenses. Subject to the provisions of Section 5 below, in
-------------------
the event that the Company does not assume the defense pursuant to Section 3 of
this Article of any action, suit, proceeding or investigation of which the
Company receives notice under this Article, any expenses (including attorneys'
fees) incurred by an Indemnitee in defending a civil or criminal action, suit,
proceeding or investigation or any appeal therefrom shall be paid by the Company
in advance of the final disposition of such matter, provided, however, that the
payment of such expenses incurred by an Indemnitee in advance of the final
disposition of such matter shall be made only upon receipt of an undertaking by
or on behalf of the Indemnitee to repay all amounts so advanced in the event
that it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company as authorized in this Article. Such undertaking may
be accepted without reference to the financial ability of the Indemnitee to make
such repayment.
5. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2 or 4 of this Article, the
Indemnitee shall submit to the Company a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Company of the written request of
the Indemnitee, unless the Company determines within such 60-day period that the
Indemnitee did not meet the applicable standard of conduct set forth in Section
1 or 2, as the case may be. Such
3
<PAGE>
determination shall be made in each instance by (a) a majority vote of a quorum
of the directors of the Company, (b) a majority vote of a quorum of the
outstanding shares of stock of all classes entitled to vote for directors,
voting as a single class, which quorum shall consist of stockholders who are not
at that time parties to the action, suit or proceeding in question, (c)
independent legal counsel (who may be regular legal counsel to the Company), or
(d) a court of competent jurisdiction.
6. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Company denies such request, in whole or in part, or if no
disposition thereof is made within the 60-day period referred to above in
Section 5. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expense under
this Article shall be on the Company. Neither the failure of the Company to have
made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the Company
pursuant to Section 5 that the Indemnitee has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. The Indemnitee's
expenses (including attorneys fees) incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
proceeding shall also be indemnified by the Company.
7. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of Chapter 156B of the Massachusetts
General Laws or any other applicable laws shall affect or diminish in any way
the rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
8. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or directors or otherwise, both as to action in his official capacity and as to
action in any other capacity while holding office for the Company, and shall
continue as to an Indemnitee who has ceased to be a director or officer, and
shall inure to the benefit of the estate, heirs, executors and administrators of
the Indemnitee. Nothing contained in this Article shall be deemed to prohibit,
and the Company is specifically authorized to enter into, agreements with
officers and directors providing indemnification rights and procedures different
from those set forth in this Article. In addition, the Company may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the
4
<PAGE>
Company or other persons serving the Company and such rights may be equivalent
to, or greater or less than, those set forth in this Article.
9. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Company for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Company shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
10. Insurance. The Company may purchase and maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Company or another organization or employee benefit plan against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Company would have the power to indemnify
such person against such expense, liability or loss under Chapter 156B of the
Massachusetts General Laws.
11. Merger or Consolidation. If the Company is merged into or
-----------------------
consolidated with another corporation or other entity and the Company is not the
surviving corporation or other entity, the surviving corporation or other entity
shall assume the obligations of the Company under this Article with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the date of such merger or
consolidation.
12. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Company, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
13. Subsequent Legislation. If the Massachusetts General Laws are amended
----------------------
after adoption of this Article to expand further the indemnification permitted
to Indemnitees, then the Company shall indemnify such persons to the fullest
extent permitted by the Massachusetts General Laws, as so amended.
5
<PAGE>
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE
ARTICLES OF ORGANIZATION.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
304 Concord Road, Billerica, MA 01821-3485
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
President:
Treasurer:
Clerk:
Directors:
</TABLE>
c. The fiscal year (i.e., tax year) of the corporation shall end on the last
day of the month of:
d. The name and business address of the resident agent, if any, of the
corporation is:
/**/We further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretofore amended, except amendments to the following articles. Briefly
describe amendments below:
Article III is amended to reflect recapitalization of the corporation.
The former Continuation Sheet 4 is deleted in its entirety and replaced by
the attached Continuation Sheet 4A.
The former Continuation Sheet 6A is deleted in its entirety and replaced by
the attached Continuation Sheet 6A.
SIGNED UNDER THE PENALTIES OF PERJURY, this __________ day of __________________
______, 1997___________,
Douglas A. Catalano ,/*/Presidentxxxxxxxxxxxxxxxxxxxxxxxxx
- ------------------------------------------
Allen K. Deary , /*/Clerkxxxxxxxxxxxxxxxxxxx
- ---------------------------------------------------
/*/Delete the inapplicable words. /**/If there are no amendments, state "None".
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
==================================================================
I hereby approve the within Restated Articles of Organization and,
the filing fee in the amount of $_______________ having been paid,
said articles are deemed to have been filed with me this __________
day of ____________________, 19 ____.
EFFECTIVE DATE: __________________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Peter B. Tarr, Esq.
-------------------------------------------
Hale and Dorr LLP
-------------------------------------------
60 State Street
-------------------------------------------
Boston, MA 02109
Telephone:(617) 526-6000
------------------------------------
<PAGE>
EXHIBIT 3.3
-----------
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I STOCKHOLDERS
Section 1 Annual Meeting
Section 2 Special Meetings
Section 3 Places of Meetings
Section 4 Notices
Section 5 Quorum
Section 6 Voting and Proxies
Section 7 Action at a Meeting
Section 8 Action Without Meeting by Written Consent
Section 9 Record Date
ARTICLE II DIRECTORS
Section 1 Powers
Section 2 Number and Election
Section 3 Vacancies
Section 4 Enlargement of the Board of Directors
Section 5 Tenure
Section 6 Resignation
Section 7 Removal
Section 8 Annual Meeting
Section 9 Regular Meetings
Section 10 Special Meetings
Section 11 Notices
Section 12 Quorum
Section 13 Action at a Meeting
Section 14 Action by Written Consent
Section 15 Committees
Section 16 Telephone Conference Meetings
ARTICLE III OFFICERS
Section 1 Enumeration
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Section 2 Election and Vacancies
Section 3 Qualification
Section 4 Tenure
Section 5 Resignation
Section 6 Removal
Section 7 President
Section 8 Vice Presidents
Section 9 Treasurer
Section 10 Assistant Treasurer
Section 11 Clerk
Section 12 Assistant Clerk
Section 13 Secretary and Assistant Secretaries
ARTICLE IV PROVISIONS RELATING TO CAPITAL STOCK
Section 1 Issuance and Consideration
Section 2 Certificates of Stock
Section 3 Uncertificated Shares
Section 4 Transfer of Stock
Section 5 Equitable Interests Not Recognized
Section 6 Lost or Destroyed Certificates
ARTICLE V STOCK IN OTHER CORPORATIONS
ARTICLE VI INSPECTION OF RECORDS
ARTICLE VII CHECKS, NOTES, DRAFTS AND OTHER INSTRUMENTS
ARTICLE VIII SEAL
ARTICLE IX FISCAL YEAR
ARTICLE X INTERESTED DIRECTORS AND OFFICERS
ARTICLE XI INDEMNIFICATION
ARTICLE XII AMENDMENTS
</TABLE>
2
<PAGE>
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of stockholders shall be
--------------------------
held within six months after the end of the corporation's fiscal year specified
in these By-laws. The date and hour of the annual meeting shall be fixed by the
Directors. The purposes for which the annual meeting is to be held, in addition
to those prescribed by law, by the Articles of Organization or by these By-laws,
may be specified by the Directors or the President. In the event that no date
for the annual meeting is established or if no annual meeting is held in
accordance with the foregoing provisions, a special meeting may be held in lieu
thereof, and any action taken at such meeting shall have the same effect as if
taken at the annual meeting.
Section 2. Special Meetings. Special meetings of the stockholders may be
----------------------------
called by the President or by the Directors and shall be called by the Clerk, or
in case of the death, absence, incapacity or refusal of the Clerk, by any other
officer, upon written application of one or more stockholders who are entitled
to vote at the meeting and who hold at least one-tenth part in interest of the
capital stock entitled to vote at the meeting, stating the time, place and
purposes of the meeting.
Section 3. Place of Meetings. All meetings of stockholders shall be held
-----------------------------
at the principal office of the corporation unless a different place (within the
United States) is specified in the notice of the meeting.
Section 4. Notices. A written notice, stating the place, day and hour of
-------------------
all meetings of stockholders shall be given by the Clerk or Assistant Clerk (or
the person or persons calling the meeting), at least seven days before the
meeting, to each stockholder entitled to vote thereat and to each stockholder
who, by law, the Articles of Organization, or these By-laws, is entitled to such
notice, by leaving such notice with him or at his residence or usual place of
business, or by mailing it, postage prepaid, and addressed to such stockholder
at his address as it appears upon the books of the corporation. Such notice, if
the meeting is called otherwise than by the Clerk, may be a copy of the call of
the meeting; and if the meeting is not otherwise called, such notice given by
the Clerk shall constitute a call of the meeting by him. Notices of all meetings
of stockholders shall state the purposes for which the meetings are called. No
notice need be given to any stockholder if a written waiver of notice, executed
before or after the meeting by the stockholder or his attorney, thereunto
authorized, is filed with the records of the meeting.
Section 5. Quorum. Unless the Articles of Organization otherwise provide,
------------------
at any meeting of stockholders a quorum for the transaction of business shall
consist of one or more individuals appearing in person and/or as proxies and
owning and/or representing a majority of the shares of the corporation then
outstanding and entitled to vote, provided that less than
1
<PAGE>
such quorum shall have power to adjourn the meeting from time to time.
Section 6. Voting and Proxies. Each stockholder shall have one vote for
------------------------------
each share of stock entitled to vote, and a proportionate vote for any
fractional share entitled to vote, held by him of record according to the
records of the corporation, unless otherwise provided by law or the Articles of
Organization. Stockholders may vote either in person or by written proxy dated
not more than six months before the meeting named therein. Proxies shall be
filed with the Clerk before being voted at any meeting or any adjournment
thereof. Except as otherwise limited therein, proxies shall entitle the persons
named therein to vote at the meeting specified therein and at any adjourned
session of such meeting but shall not be valid after final adjournment of the
meeting. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the corporation receives a specific written notice to the contrary
from any one of them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger.
Notwithstanding the foregoing, a proxy coupled with an interest sufficient in
law to support an irrevocable power, including without limitation, an interest
in the shares or in the corporation generally, may be made irrevocable if it so
provides, need not specify the meeting to which it relates, and shall be valid
and enforceable until the interest terminates, or for such shorter period as may
be specified in the proxy.
Section 7. Action at Meeting. Action of the stockholders on any matter
-----------------------------
properly brought before a meeting shall require, and may be effected by, the
affirmative vote of the holders of a majority of the stock present or
represented and entitled to vote and voting on such matter, provided that such
majority shall be at least a majority of the number of shares required to
constitute a quorum for action on such matter; except where a different vote is
required by law, the Articles of Organization or these By-laws. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election. No ballot shall be required for
such election unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election.
Section 8. Action without Meeting by Written Consent. Any action by
-----------------------------------------------------
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action by a writing filed with the records of the
meetings of stockholders. Such consent shall be treated for all purposes as a
vote at a meeting.
Section 9. Record Date. The Directors may fix in advance a time which
-----------------------
shall be not more than sixty days prior to (a) the date of any meeting of
stockholders, (b) the date for the payment of any dividend or the making of any
distribution to stockholders, or (c) the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose, as the
record date for determining the stockholders having the right to notice of and
to vote at
2
<PAGE>
such meeting and any adjournment thereof, the right to receive such dividend or
distribution, or the right to give such consent or dissent. In such case only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date. Without fixing such record date the Directors may for any such
purposes close the transfer books for all or any part of such period.
If no record date is fixed and the transfer books are not closed:
(1) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given.
(2) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of
Directors acts with respect thereto.
ARTICLE II
DIRECTORS
Section 1. Powers. The Board of Directors, subject to any action at any
------------------
time taken by such stockholders as then have the right to vote, shall have the
entire charge, control and management of the corporation, its property and
business and may exercise all or any of its powers.
Section 2. Number and Election. The number of directors shall be not less
-------------------------------
than three, except that whenever there shall be only two stockholders the number
of directors shall be not less than two and whenever there shall be only one
stockholder the number of directors shall be not less than one. Except as
otherwise provided by these By-Laws or in the Articles of Organization, the
number of Directors that shall constitute the whole Board of Directors shall be
fixed, and the Directors elected, by the stockholders at the annual meeting. No
Director need be a stockholder.
Section 3. Vacancies. Any vacancy at any time existing in the Board of
---------------------
Directors may be filled by the Board of Directors at any meeting. The
stockholders having voting power may, at a special meeting called at least in
part for the purpose, choose a successor to a Director whose office has become
vacant, and the person so chosen shall displace any successor chosen by the
Directors.
Section 4. Enlargement of the Board of Directors. The number of the Board
-------------------------------------------------
of Directors may be increased and one or more additional Directors elected at
any special
3
<PAGE>
meeting of the stockholders, called at least in part for the purpose, or by the
Directors by vote of a majority of the Directors then in office.
Section 5. Tenure. Except as otherwise provided by law, by the Articles
------------------
of Organization or by these By-laws, Directors shall hold office until the next
annual meeting of stockholders and thereafter until their successors are chosen
and qualified.
Section 6. Resignation. Any Director may resign by delivering his written
-----------------------
resignation to the corporation at its principal office or to the President or
Clerk. Such resignation shall be effective upon receipt unless it is specified
to be effective at some other time or upon the happening of some other event.
Section 7. Removal. A Director may be removed from office (a) with or
-------------------
without cause by vote of the holders of a majority of the shares entitled to
vote in the election of Directors or (b) for cause by vote of a majority of the
Directors then in office. A Director may be removed for cause only after
reasonable notice and opportunity to be heard before the body proposing to
remove him.
Section 8. Annual Meeting. Immediately after each annual meeting of
--------------------------
stockholders, or the special meeting held in lieu thereof, and at the place
thereof, if a quorum of the Directors is present, there shall be a meeting of
the Directors without notice; but if such a quorum of the Directors is not
present, or if present do not proceed immediately thereafter to hold a meeting
of the Directors, the annual meeting of the Directors shall be called in the
manner hereinafter provided with respect to the call of special meetings of
Directors.
Section 9. Regular Meetings. Regular meetings of the Directors may be
----------------------------
held at such times and places as shall from time to time be fixed by resolution
of the Board and no notice need be given of regular meetings held at times and
places so fixed, PROVIDED, HOWEVER, that any resolution relating to the holding
of regular meetings shall remain in force only until the next annual meeting of
stockholders, or the special meeting held in lieu thereof, and that if at any
meeting of Directors, at which a resolution is adopted fixing the times or place
or places for any regular meetings, any director is absent, no meeting shall be
held pursuant to such resolution until either each such absent Director has in
writing or by telegram approved the resolution or seven days have elapsed after
a copy of the resolution certified by the Clerk has been mailed, postage
prepaid, addressed to each such absent Director at his last known home or
business address.
Section 10. Special Meetings. Special meetings of the Directors may be
-----------------------------
called by the President, by the Clerk, by the Secretary, by any two Directors,
or by one Director in the event that there is only one Director, and shall be
held at the place designated in the notice or call thereof.
4
<PAGE>
Section 11. Notices. Notices of any special meeting of the Directors
--------------------
shall be given to each Director by the Clerk or Secretary (a) by mailing to him,
postage prepaid, and addressed to him at his address as registered on the books
of the corporation, or if not so registered at his last known home or business
address, a written notice of such meeting at least four days before the meeting,
or (b) by delivering such notice by hand or by telegram, telecopy or telex to
him at least forty-eight hours before the meeting at such address, notice of
such meeting, or (c) by giving notice to such Director in person or by telephone
at least 48 hours in advance of the meeting. Such notice, if the meeting is
called otherwise than by the Clerk or Secretary, may be a copy of the call of
the meeting; and if the meeting is not so otherwise called, such notice given by
the Clerk or Secretary shall constitute a call of the meeting by him. If the
Clerk or Secretary refuses or neglects for more than twenty-four hours after
receipt of a call to give notice of such special meeting, or if the offices of
Clerk and Secretary are vacant or the Clerk and Secretary are absent from the
Commonwealth of Massachusetts or incapacitated, such notice may be given by the
officer or one of the Directors calling the meeting. Notice need not be given
to any Director if a written waiver of notice, executed by him before or after
the meeting, is filed with the records of the meeting, or to any Director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. A notice or waiver of notice of a Directors' meeting
need not specify the purposes of the meeting.
Section 12. Quorum. At any meeting of the Directors a majority of the
-------------------
Directors then in office shall constitute a quorum for the transaction of
business; provided always that any number of Directors (whether one or more and
whether or not constituting a quorum) constituting a majority of Directors
present at any meeting or at any adjourned meeting may make any reasonable
adjournment thereof.
Section 13. Action at Meeting. At any meeting of the Directors at which a
------------------------------
quorum is present, the action of the Directors on any matter brought before the
meeting shall be decided by vote of a majority of those present, unless a
different vote is required by law, the Articles of Organization, or these By-
laws.
Section 14. Action By Written Consent. Any action by the Directors may be
--------------------------------------
taken without a meeting if a written consent thereto is signed by all the
Directors and filed with the records of the Directors' meetings. Such consent
shall be treated as a vote of the Directors for all purposes.
Section 15. Committees. The Directors may, by vote of a majority of the
-----------------------
number of Directors then in office elect from their number an executive or other
committees and may, by like vote, delegate thereto some of all of their powers
except those which by law, the Articles of Organization or these By-laws they
are prohibited from delegating. Except as the
5
<PAGE>
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Directors or in
such rules, its business shall be conducted as nearly as may be in the same
manner as is provided by these By-laws for the Directors. The Directors shall
have the power to fill vacancies in, change the membership of, or to disband,
any such committee.
Section 16. Telephone Conference Meetings. The Directors or members of
------------------------------------------
any committee may participate in a meeting of the Directors or such committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be a
-----------------------
President, a Treasurer, a Clerk, and such Vice Presidents, Assistant Treasurers,
Assistant Clerks, Secretary, Assistant Secretaries and other officers as may
from time to time be determined by the Directors. The Board may appoint one of
its members to the office of Chairman of the Board and from time to time define
the powers and duties of that office notwithstanding any other provisions of
these By-laws.
Section 2. Election and Vacancies. The President, Treasurer and Clerk
----------------------------------
shall be elected annually by the Directors at their first meeting following the
annual meeting of stockholders, or the special meeting held in lieu thereof.
Other officers may be chosen by the Directors at such meeting or at any other
meeting. Any vacancy at any time existing in any office may be filled by the
Directors at any meeting and such successor in office shall hold office for the
unexpired term of this predecessor.
Section 3. Qualification. The President may, but need not, be a Director.
-------------------------
No officer need be a stockholder. Any two or more offices may be held by the
same person. The Clerk shall be a resident of Massachusetts unless the
corporation has a resident agent appointed for the purpose of service of
process. Any officer may be required by the Directors to give bond for the
faithful performance of his duties to the corporation in such amount and with
such sureties as the Directors may determine. The premiums for such bonds may
be paid by the corporation.
Section 4. Tenure. Except as otherwise provided by law, by the Articles
------------------
of Organization or by these By-laws, the President, Treasurer and Clerk shall
hold office until the first meeting of the Directors following the next annual
meeting of stockholders, or the special meeting held in lieu thereof, and
thereafter until his successor is chosen and qualified.
6
<PAGE>
Other officers shall hold office until the first meeting of the Directors
following the next annual meeting of stockholders, or the special meeting held
in lieu thereof, unless a shorter term is specified in the vote choosing or
appointing them.
Section 5. Resignation. Any officer may resign by delivering his written
-----------------------
resignation to the corporation at its principal office or to the President or
Clerk, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
Section 6. Removal. The Directors may remove any officer appointed by the
-------------------
Directors with or without cause by a vote of a majority of the entire number of
Directors then in office; provided, that an officer may be removed for cause
only after reasonable notice and opportunity to be heard by the Board of
Directors prior to action thereon.
Section 7. President. The President when present shall preside at all
---------------------
meetings of the stockholders and of the Directors. He shall be the chief
executive officer of the corporation except as the Board of Directors may
otherwise provide. It shall be his duty and he shall have the power to see that
all orders and resolutions of the Directors are carried into effect. He shall
from time to time report to the Directors all matters within his knowledge which
the interests of the corporation may require to be brought to its notice. The
President shall perform such duties and have such powers additional to the
foregoing as the Directors shall designate.
Section 8. Vice Presidents. In the absence or disability of the
---------------------------
President, his powers and duties shall be performed by the Vice President, if
only one, or, if more than one, by the one designated for the purpose by the
Directors. Each Vice President shall have such other powers and perform such
other duties as the Directors shall from time to time designate. The Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President and any other title selected by the Directors.
Section 9. Treasurer. The Treasurer shall, subject to the direction of
---------------------
the Directors, have general charge of the financial affairs of the corporation
and shall cause to be kept accurate books of accounts. He shall have custody of
all funds, securities, and valuable documents of the corporation, except as the
Directors may otherwise provide. He shall promptly render to the President and
to the Directors such statements of his transactions and accounts as the
President and Directors respectively may from time to time require. The
Treasurer shall perform such duties and have such powers additional to the
foregoing as the Directors may designate.
Section 10. Assistant Treasurers. In the absence or disability of the
---------------------------------
Treasurer, his powers and duties shall be performed by the Assistant Treasurer,
if only one, or, if more than
7
<PAGE>
one, by the one designated for the purpose by the Directors. Each Assistant
Treasurer shall have such other powers and perform such other duties as the
Directors shall from time to time designate.
Section 11. Clerk. The Clerk shall record in books kept for the purpose
------------------
all votes and proceedings of the stockholders and, if there be no Secretary or
Assistant Secretary, of the Directors at their meetings. Unless the Directors
shall appoint a transfer agent and/or registrar or other officer or officers for
the purpose, the Clerk shall be charged with the duty of keeping, or causing to
be kept, accurate records of all stock outstanding, stock certificates issued
and stock transfers; and, subject to such other or different rules as shall be
adopted from time to time by the Directors, such records may be kept solely in
the stock certificate books. The Clerk shall perform such duties and have such
powers additional to the foregoing as the Directors shall designate.
Section 12. Assistant Clerks. In the absence of the Clerk from any
-----------------------------
meeting of the stockholders or, if there be no Secretary or Assistant Secretary,
from any meeting of the Directors, the Assistant Clerk, if one be elected, or,
if there be more than one, the one designated for the purpose by the Directors,
otherwise a Temporary Clerk designated by the person presiding at the meeting
shall perform the duties of the Clerk. Each Assistant Clerk shall have such
other powers and perform such other duties as the Directors may from time to
time designate.
Section 13. Secretary and Assistant Secretaries. If a Secretary is
------------------------------------------------
elected, he shall keep a record of the meetings of the Directors and in his
absence, an Assistant Secretary, if one be elected, or, if there be more than
one, the one designated for the purpose by the Directors, otherwise a Temporary
Secretary designated by the person presiding at the meeting, shall perform the
duties of the Secretary. Each Assistant Secretary shall have such other powers
and perform such other duties as the Directors may from time to time designate.
ARTICLE IV
PROVISIONS RELATING TO CAPITAL STOCK
Section 1. Issuance and Consideration. Any unissued capital stock from
--------------------------------------
time to time authorized under the Articles of Organization may be issued by vote
of the stockholders or by vote of the Directors. Stock may be issued for cash,
tangible or intangible property, services, or for a debt or note or expenses.
Stock having par value shall not be issued for cash, property, services, or
expenses worth less than the par value. For the purpose of this Section 1, a
debt or note of the purchaser, secured or unsecured, shall not be considered
property.
Section 2. Certificates of Stock. Each stockholder shall be entitled to a
---------------------------------
certificate or certificates representing in the aggregate the shares owned by
him and certifying the number
8
<PAGE>
and class thereof, which shall be in such form as the Directors shall adopt
unless such shares are uncertificated as provided in these By-laws. Each
certificate of stock shall be signed by the President or a Vice President and by
the Treasurer or an Assistant Treasurer, but when a certificate is countersigned
by a transfer agent or a registrar, other than a Director, officer or employee
of the corporation, such signatures may be facsimiles. In case any officer who
has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer at
the time of its issue. Every certificate for shares of stock which are subject
to any restriction on transfer pursuant to the Articles of Organization, the By-
laws or any agreement to which the corporation is a party, shall have the
restriction noted conspicuously on the certificate and shall also set forth on
the face or back either the full text of the restriction or a statement of the
existence of such restriction and a statement that the corporation will furnish
a copy to the holder of such certificate upon written request and without
charge. Every certificate issued when the corporation is authorized to issue
more than one class or series of stock shall set forth on its face or back
either the full text of the preferences, voting powers, qualifications and
special and relative rights of the shares of each class and series authorized to
be issued or a statement of the existence of such preferences, powers,
qualifications and rights, and a statement that the corporation will furnish a
copy thereof to the holder of such certificate upon written request and without
charge.
Section 3. Uncertificated Shares. The Directors may provide by resolution
---------------------------------
that some or all of any or all classes and series of its shares shall be
uncertificated shares. Such resolution shall not apply to shares represented by
a certificate until such certificate is surrendered to the corporation. If the
corporation entitles any stockholder of a class or series to receive a
certificate representing shares of such class or series, all other holders of
shares of such class or series shall be so entitled. The initial transaction
statement sent with respect to the issuance or transfer of uncertificated shares
which are subject to any restriction on transfer pursuant to the Articles of
Organization, the By-laws or any agreement to which the corporation is a party,
shall have such restriction noted conspicuously on the statement and shall also
set forth either the full text of the restriction or a statement of the
existence of such restriction and a statement that the corporation will furnish
a copy of such restriction to the holder of such uncertificated share upon
written request and without charge. The initial transaction statement sent with
respect to the issuance of transfer of uncertificated shares when the
corporation is authorized to issue more than one class or series of stock shall
set forth either the full text of the preferences, voting powers, qualifications
and special and relative rights of shares of each class and series, if any,
authorized to be issued, as set forth in Articles of Organization, or a
statement of the existence of such preferences, powers, qualifications and
rights, and a statement that the corporation will furnish a copy thereof to the
holder of such uncertificated share upon written request and without charge.
9
<PAGE>
Section 4. Transfer of Stock. Subject to the restrictions, if any, stated
-----------------------------
or noted on the stock certificate, or, on the initial transaction statement in
the event the shares are uncertificated, the stock of the corporation shall be
transferable, so as to affect the rights of the corporation, only by transfer
recorded on the books of the corporation or its transfer agent, in person or by
duly authorized attorney, and upon the surrender of the certificate or
certificates properly endorsed or assigned with such proof of authority or
authenticity of signature as the corporation shall reasonably require.
Section 5. Equitable Interests Not Recognized. The corporation shall be
----------------------------------------------
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person except as may be otherwise expressly provided by law.
Section 6. Lost or Destroyed Certificates. The Board of Directors of the
------------------------------------------
Corporation may, subject to Massachusetts General Laws, Chapter 156B, Section
29, as amended from time to time, determine the conditions upon which a new
certificate of stock or uncertificated shares may be issued in place of any
certificate alleged to have been lost, destroyed, or mutilated. The Board of
Directors may, in their discretion, require the owner of a lost, mutilated or
destroyed certificate, or his legal representative, to give a bond, sufficient
in their opinion, with or without surety, to indemnify the corporation against
any loss or claim which may arise by reason of the issue of the shares in place
of such lost, mutilated or destroyed stock certificate.
ARTICLE V
STOCK IN OTHER CORPORATIONS
Except as the Directors may otherwise designate, the President or Treasurer
may waive notice of, and appoint any person or persons to act as proxy or
attorney in fact for this Corporation (with or without power of substitution)
at, any meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this Corporation.
ARTICLE VI
INSPECTION OF RECORDS
Books, accounts, documents and records of the corporation shall be open to
inspection by any Director at all times during the usual hours of business. The
original, or attested copies, of the Articles of Organization, By-laws and
records of all meetings of the incorporators and stockholders, and the stock and
transfer records, which shall contain the names of all stockholders and the
record address and the amount of stock held by each, shall be kept in
Massachusetts at the principal office of the corporation, or at an office of its
10
<PAGE>
transfer agent or of the Clerk or the resident agent, if any, of the
corporation. Said copies and records need not all be kept in the same office.
They shall be available at all reasonable times to the inspection of any
stockholder for any proper purpose but not to secure a list of stockholders or
other information for the purpose of selling said list or information or copies
thereof or of using the same for a purpose other than in the interest of the
applicant, as a stockholder, relative to the affairs of the corporation.
ARTICLE VII
CHECKS, NOTES, DRAFTS AND OTHER INSTRUMENTS
Checks, notes, drafts and other instruments for the payment of money drawn
or endorsed in the name of the corporation may be signed by any officer or
officers or person or persons authorized by the Directors to sign the same. No
officer or person shall sign any such instrument as aforesaid unless authorized
by the Directors to do so.
ARTICLE VIII
SEAL
The seal of the corporation shall be circular in form, bearing its name,
the word "Massachusetts," and the year of its incorporation. The Treasurer
shall have custody of the seal and may affix it (as may any other officer if
authorized by the Directors) to any instrument requiring the corporate seal.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be the year ending with December
31 each year.
ARTICLE X
INTERESTED DIRECTORS AND OFFICERS
The Directors shall have the power to fix their compensation from time to
time. No contract or transaction between the corporation and one or more of its
Directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
Directors or officers are directors or officers, or have a financial or other
interest, shall be void or voidable solely for this reason, or solely because
the Director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
nor shall any Director or officer be under any liability to the corporation on
account of any such contract or transaction if:
11
<PAGE>
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee authorized the
contract or transaction by the affirmative votes of a majority of the
disinterested Directors, even though the disinterested Directors be
less than a quorum; or
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is
specifically approved by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction, and if they are stockholders, their
votes may be counted for the purpose of a stockholder vote approving such
contract or transaction.
ARTICLE XI
INDEMNIFLCATION
The corporation shall, to the extent legally permissible, indemnify any
person serving or who has served as a Director or officer of the corporation, or
at its request as a Director or officer of any organization, or at its request
in any capacity with respect to any employee benefit plan, against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel fees, reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a Director or officer (or in any capacity with respect
to any employee benefit plan), except with respect to any matter as to which he
shall have been adjudicated in any proceeding not to have acted in good faith in
the reasonable belief that his action was in the best interest of the
corporation (or, to the extent that such matter relates to service with respect
to an employee benefit plan, in the best interest of the participants or
beneficiaries of such employee benefit plan); provided, however, that as to any
matter disposed of by a compromise payment by such person, pursuant to a consent
decree or otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless such compromise and indemnification therefore
shall be approved:
12
<PAGE>
EXHIBIT 3.4
-----------
AMENDED AND RESTATED
BY-LAWS
OF
PERITUS SOFTWARE SERVICES, INC.
<PAGE>
Amended and Restated By-Laws
----------------------------
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1 - Stockholders............................................. 1
Section 1.1 Place of Meetings............................... 1
-----------------
Section 1.2 Annual Meeting.................................. 1
--------------
Section 1.3 Special Meetings................................ 1
----------------
Section 1.4 Notice of Meetings.............................. 3
------------------
Section 1.5 Quorum.......................................... 3
------
Section 1.6 Adjournments.................................... 3
------------
Section 1.7 Voting and Proxies.............................. 4
------------------
Section 1.8 Action at Meeting............................... 4
-----------------
Section 1.9 Action without Meeting.......................... 4
----------------------
ARTICLE 2 - Directors................................................ 4
Section 2.1 Powers.......................................... 4
------
Section 2.2 Number; Election and Qualification.............. 5
----------------------------------
Section 2.3 Enlargement of the Board........................ 5
------------------------
Section 2.4 Tenure.......................................... 6
------
Section 2.5 Vacancies....................................... 6
---------
Section 2.6 Resignation..................................... 6
-----------
Section 2.7 Removal......................................... 6
-------
Section 2.8 Regular Meetings................................ 6
----------------
Section 2.9 Special Meetings................................ 7
----------------
Section 2.10 Meetings by Telephone Conference Calls.......... 7
--------------------------------------
Section 2.11 Notice of Special Meetings...................... 7
--------------------------
Section 2.12 Quorum.......................................... 7
------
Section 2.13 Action at Meeting............................... 7
-----------------
Section 2.14 Action by Consent............................... 7
-----------------
Section 2.15 Committees...................................... 8
----------
Section 2.16 Compensation of Directors....................... 8
-------------------------
ARTICLE 3 - Officers................................................ 8
Section 3.1 Enumeration.................................... 8
-----------
Section 3.2 Election....................................... 8
--------
Section 3.3 Qualification.................................. 8
-------------
Section 3.4 Tenure......................................... 9
------
Section 3.5 Resignation and Removal........................ 9
-----------------------
Section 3.6 Vacancies...................................... 9
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</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 3.7 Chairman of the Board.......................... 9
---------------------
Section 3.8 Chief Executive Officer........................ 9
-----------------------
Section 3.9 President...................................... 10
---------
Section 3.10 Vice Presidents................................ 10
---------------
Section 3.11 Treasurer and Assistant Treasurers............. 10
----------------------------------
Section 3.12 Clerk and Assistant Clerks..................... 11
--------------------------
Section 3.13 Secretary and Assistant Secretaries............ 11
-----------------------------------
Section 3.14 Salaries....................................... 11
--------
ARTICLE 4 - Capital Stock........................................... 12
Section 4.1 Issue of Capital Stock......................... 12
----------------------
Section 4.2 Certificate of Stock........................... 12
--------------------
Section 4.3 Transfers...................................... 12
---------
Section 4.4 Record Date.................................... 13
-----------
Section 4.5 Replacement of Certificates.................... 13
---------------------------
ARTICLE 5 - Miscellaneous Provisions................................ 13
Section 5.1 Fiscal Year.................................... 13
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Section 5.2 Seal........................................... 13
----
Section 5.3 Voting of Securities........................... 13
--------------------
Section 5.4 Corporate Records.............................. 14
-----------------
Section 5.5 Evidence of Authority.......................... 14
---------------------
Section 5.6 Articles of Organization....................... 14
------------------------
Section 5.7 Severability................................... 14
------------
Section 5.8 1987 Massachusetts Control Share Acquisition
--------------------------------------------
Act............................................ 14
---
ARTICLE 6 - Amendments.............................................. 14
</TABLE>
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<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
PERITUS SOFTWARE SERVICES, INC.
ARTICLE 1 - Stockholders
------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held within
-----------------
the Commonwealth of Massachusetts unless the Articles of Organization permit the
holding of stockholders' meetings outside Massachusetts, in which event such
meetings may be held either within or without Massachusetts. Meetings of
stockholders shall be held at the principal office of the corporation unless a
different place is fixed by the Board of Directors or the Chief Executive
Officer and stated in the notice of the meeting.
1.2 Annual Meeting. The annual meeting of the stockholders shall be held
--------------
within six months after the end of each fiscal year of the corporation on a date
(which date shall not be a legal holiday in the place where the meeting is held)
and at the time and place to be fixed by the Board of Directors or the Chief
Executive Officer and stated in the notice of the meeting. The purposes for
which the annual meeting is to be held, in addition to those prescribed by law,
by the Articles of Organization or by these By-Laws, may be specified by the
Board of Directors or the Chief Executive Officer. If no annual meeting is held
in accordance with the foregoing provisions, a special meeting may be held in
lieu of the annual meeting, and any action taken at that special meeting shall
have the same effect as if it had been taken at the annual meeting, and in such
case all references in these By-Laws to the annual meeting of stockholders shall
be deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called by
----------------
the President or by the Board of Directors. In addition, upon written
application of one or more stockholders who are entitled to vote and who hold at
least the Required Percentage (as defined below) of the capital stock entitled
to vote at the meeting, special meetings shall be called by the Clerk, or in the
case of the death, absence, incapacity or refusal of the Clerk, by any other
officer.
For purposes of this Section 1.3, the "Required Percentage" shall be (i)
10% at any time at which the corporation shall not have a class of voting stock
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and (ii) 80% or such lesser percentage as shall constitute the maximum
percentage permitted
-1-
<PAGE>
by law for this purpose at any time the corporation has a class of voting stock
registered under the Exchange Act.
Any request for a call of a special meeting of stockholders (a "Call")
by the holders of the Required Percentage of the capital stock entitled to vote
at the meeting (the "Voting Stock") shall be governed by and subject to the
following:
(a) Any stockholder of record seeking to solicit requests for a Call
pursuant to this Section 1.3 shall so notify the corporation by notice in
writing to the Clerk of the corporation, and such written notification shall set
forth the reason or reasons for the Call and the purpose or purposes of such
special meeting.
(b) No solicitation of stockholder requests for a Call (a "Call
Solicitation") may be commenced (i) before the Call Request Record Date (as
defined in paragraph (c) of this Section 1.3), or (ii) during the period of 90
days following the most recent meeting of the stockholders of the corporation.
(c) In order that the corporation may determine the stockholders
entitled to request a Call, the Board of Directors of the corporation shall fix
a record date (the "Call Request Record Date"). Any stockholder of record
seeking to solicit stockholder requests for a Call shall, with delivery to the
corporation of the written information specified in paragraph (a) of this
Section 1.3, request in writing that the Board of Directors fix the Call Request
Record Date. The Board of Directors shall, within 21 days after the date on
which such request is received, adopt a resolution or vote fixing the Call
Request Record Date, and such Call Request Record Date shall be not more than 10
days after the date upon which such resolution or vote is adopted by the Board
of Directors.
(d) All requests for a Call and revocations thereof shall be delivered
to the corporation no later than the 30th day (the "Delivery Date") after the
Call Request Record Date.
(e) Any stockholder may revoke a prior request for a Call or
opposition to a Call by an instrument in writing delivered prior to the Delivery
Date.
(f) Promptly after the Delivery Date, requests for a Call and
revocations thereof shall be counted and verified by an independent party
selected by the corporation.
(g) If, in response to any Call Solicitation, the holders of record of
the Required Percentage of the Voting Stock as of the Call Request Record Date
submit valid and unrevoked requests for a Call no later than the Delivery Date,
the Board of Directors of the corporation shall fix a record date pursuant to
Section 4.4 hereof and a meeting date for the special meeting, provided that the
--------
date to be fixed for such
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<PAGE>
meeting shall be no earlier than 60 days or later than 90 days after the
Delivery Date, and provided further that the Board of Directors shall not be
-------- -------
obligated to fix a meeting date or to hold any meeting of stockholders within 60
days of the next scheduled meeting of the stockholders of the corporation.
(h) In the absence of a quorum at any special meeting called pursuant
to a Call Solicitation, such special meeting may be postponed or adjourned from
time to time only by the officer of the corporation entitled to preside at such
meeting.
(i) If a Call Solicitation does not receive the support of the holders
of record of the Required Percentage of the Voting Stock, no subsequent Call may
be made or solicited by any stockholder during a period of 90 days after the
Delivery Date.
1.4 Notice of Meetings. A written notice of each meeting of stockholders,
------------------
stating the place, date and hour thereof, and the purposes for which the meeting
is to be held, shall be given by the Clerk, Assistant Clerk or other person
calling the meeting at least seven days before the meeting to each stockholder
entitled to vote at the meeting and to each stockholder who by law, by the
Articles of Organization or by these By-Laws is entitled to such notice, by
leaving such notice with him or at his residence or usual place of business, or
by mailing it postage prepaid and addressed to him at his address as it appears
in the records of the corporation. Whenever any notice is required to be given
to a stockholder by law, by the Articles of Organization or by these By-Laws, no
such notice need be given if a written waiver of notice, executed before or
after the meeting by the stockholder or his authorized attorney, is filed with
the records of the meeting.
1.5 Quorum. Unless the Articles of Organization otherwise provide, the
------
holders of a majority of the number of shares of the stock issued, outstanding
and entitled to vote on any matter shall constitute a quorum with respect to
that matter, except that if two or more classes of stock are outstanding and
entitled to vote as separate classes, then in the case of each such class a
quorum shall consist of the holders of a majority of the number of shares of the
stock of that class issued, outstanding and entitled to vote. Shares owned
directly or indirectly by the corporation shall not be counted in determining
the total number of shares outstanding for this purpose.
1.6 Adjournments. Any meeting of stockholders may be postponed or
------------
adjourned to any other time and to any other place at which a meeting of
stockholders may be held under these By-Laws by the stockholders present or
represented at the meeting, although less than a quorum, or by any officer
entitled to preside or to act as clerk of such meeting, if no stockholder is
present. It shall not be necessary to notify any stockholder of any
postponement or adjournment. Any
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<PAGE>
business which could have been transacted at any meeting of the stockholders as
originally called may be transacted at any resumption or adjournment of the
meeting.
1.7 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the Articles of Organization. Stockholders may vote either in person or by
written proxy dated not more than six months before the meeting named in the
proxy. Proxies shall be filed with the clerk of the meeting, or of any
adjourned meeting, before being voted. Except as otherwise limited by its terms,
a proxy shall entitle the persons named in the proxy to vote at any adjournment
of such meeting, but shall not be valid after final adjournment of such meeting.
A proxy with respect to stock held in the name of two or more persons shall be
valid if executed by any one of them, unless at or prior to exercise of the
proxy the corporation receives a specific written notice to the contrary from
any one of them. A proxy purported to be executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior to its exercise.
1.8 Action at Meeting. When a quorum is present at any meeting, the
-----------------
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter), shall decide
any matter to be voted on by the stockholders, except when a larger vote is
required by law, the Articles of Organization or these By-Laws. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election. No ballot shall be required for
such election unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election. The corporation shall not
directly or indirectly vote any share of its own stock.
1.9 Action without Meeting. Any action required or permitted to be taken
----------------------
at any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Each such consent shall be treated for all purposes as a vote at a meeting.
ARTICLE 2 - Directors
---------------------
2.1 Powers. The business of the corporation shall be managed by a Board
------
of Directors, who may exercise all the powers of the corporation except as
otherwise provided by law, by the Articles of Organization or by these By-Laws.
In the event of a vacancy in the Board of Directors, the remaining Directors,
except as otherwise provided by law, may exercise the powers of the full Board
until the vacancy is filled.
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<PAGE>
2.2 Number; Election and Qualification. The number of Directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by vote of the
stockholders or the Board of Directors, but shall consist of not less than three
Directors (except that whenever there shall be only two stockholders the number
of Directors shall be not less than two and whenever there shall be only one
stockholder or prior to the issuance of any stock, there shall be at least one
Director). The number of Directors may be decreased at any time and from time
to time either by the stockholders or by a majority of the Directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more Directors. The
Directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. No Director need be a
stockholder of the corporation.
Notwithstanding the foregoing provisions, if the corporation is a
"registered corporation" within the meaning of Section 50A of the Massachusetts
Business Corporation Law and has not elected, pursuant to paragraph (b) of such
Section 50A, to be exempt from the provisions of paragraph (a) of such Section
50A, then:
(i) In accordance with paragraph (d), clause (iv) of such Section 50A, the
number of directors shall be fixed only by vote of the Board of Directors.
(ii) In accordance with paragraph (a) of such Section 50A, the Directors of
the corporation shall be classified with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible; the term of office of those of the first class ("Class I Directors")
to continue until the first annual meeting following the date the corporation
becomes subject to such paragraph (a) and until their successors are elected and
qualified; the term of office of those of the second class ("Class II
Directors") to continue until the second annual meeting following the date the
corporation becomes subject to such paragraph (a) and until their successors are
elected and qualified; and the term of office of those of the third class
("Class III Directors") to continue until the third annual meeting following the
date the corporation becomes subject to such paragraph (a) and until their
successors are elected and qualified. At each annual meeting of the
corporation, the successors to the class of Directors whose term expires at that
meeting shall be elected to hold office for a term continuing until the annual
meeting held in the third year following the year of their election and until
their successors are duly elected and qualified.
2.3 Enlargement of the Board. The number of Directors may be increased at
------------------------
any time and from time to time by the stockholders or by a majority of the
Directors then in office. Notwithstanding the foregoing provisions, if the
Directors of the corporation are classified with respect to the time for which
they severally hold office pursuant to paragraph (a) of Section 50A of the
Massachusetts Business Corporation Law, as it may be amended from time to time,
the number of Directors
-5-
<PAGE>
may be increased at any time and from time to time only by the Board of
Directors in accordance with paragraph (d), clause (iv) of such Section 50A.
2.4 Tenure. Each Director shall hold office until the next annual meeting
------
of stockholders and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
---------
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
Directors present at any meeting of Directors at which a quorum is present.
Each such successor shall hold office for the unexpired term of his predecessor
and until his successor is chosen and qualified or until his earlier death,
resignation or removal. Notwithstanding the foregoing provision, if the
Directors of the corporation are classified with respect to the time for which
they severally hold office pursuant to paragraph (a) of Section 50A of the
Massachusetts Business Corporation Law, as it may be amended from time to time,
the filling of any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be
governed by paragraph (d), clause (i) of Section 50A.
2.6 Resignation. Any Director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the Chairman of the
Board, President or Clerk. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
2.7 Removal. A Director may be removed from office with or without cause
-------
by vote of the holders of a majority of the shares entitled to vote in the
election of Directors. Moreover, the Directors elected by the holders of a
particular class or series of stock may be removed from office with or without
cause only by vote of the holders of a majority of the outstanding shares of
such class or series. In addition, a Director may be removed from office for
cause by vote of a majority of the Directors then in office. A Director may be
removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him. Notwithstanding the foregoing
provisions, if the Directors of the corporation are classified with respect to
the time for which they severally hold office pursuant to paragraph (a) of
Section 50A of the Massachusetts Business Corporation Law, as it may be amended
from time to time, the removal of Directors shall be governed by the provisions
of paragraph (c) of such Section 50A.
2.8 Regular Meetings. Regular meetings of the Directors may be held
----------------
without call or notice at such places, within or without Massachusetts, and at
such times as the Directors may from time to time determine, provided that any
Director who is absent when such determination is made shall be given notice of
the
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<PAGE>
determination. A regular meeting of the Directors may be held without a call or
notice immediately after and at the same place as the annual meeting of
stockholders.
2.9 Special Meetings. Special meetings of the Directors may be held at
----------------
any time and place, within or without Massachusetts, designated in a call by the
Chairman of the Board, President, Treasurer, two or more Directors or by one
Director in the event that there is only a single Director in office.
2.10 Meetings by Telephone Conference Calls. Directors or members of any
--------------------------------------
committee designated by the Directors may participate in a meeting of the
Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
2.11 Notice of Special Meetings. Notice of any special meeting of the
--------------------------
Directors shall be given to each Director by the Secretary or Clerk or by the
officer or one of the Directors calling the meeting. Notice shall be duly given
to each Director (i) by notice given to such Director in person or by telephone
at least 48 hours in advance of the meeting, (ii) by sending a telegram,
telecopy or telex, or by delivering written notice by hand, to his last known
business or home address at least 48 hours in advance of the meeting, or (iii)
by mailing written notice to his last known business or home address at least 72
hours in advance of the meeting. Notice need not be given to any Director if a
written waiver of notice, executed by him before or after the meeting, is filed
with the records of the meeting, or to any Director who attends the meeting
without protesting prior to the meeting or at its commencement the lack of
notice to him. A notice or waiver of notice of a Directors' meeting need not
specify the purposes of the meeting. If notice is given in person or by
telephone, an affidavit of the Secretary, Clerk, officer or Director who gives
such notice that the notice has been duly given shall, in the absence of fraud,
be conclusive evidence that such notice was duly given.
2.12 Quorum. At any meeting of the Board of Directors, a majority of the
------
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time without further notice.
2.13 Action at Meeting. At any meeting of the Board of Directors at which
-----------------
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, by the Articles
of Organization or by these By-Laws.
2.14 Action by Consent. Any action required or permitted to be taken at
-----------------
any meeting of the Board of Directors may be taken without a meeting if all the
Directors consent to the action in writing and the written consents are filed
with the records of
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<PAGE>
the Directors' meetings. Each such consent shall be treated for all purposes as
a vote at a meeting.
2.15 Committees. The Board of Directors may, by vote of a majority of the
----------
Directors then in office, elect from their number an executive committee or
other committees and may by like vote delegate to committees so elected some or
all of their powers to the extent permitted by law. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Directors or in
such rules, its business shall be conducted as nearly as possible in the same
manner as is provided by these By-Laws for the Directors. The Board of
Directors shall have the power at any time to fill vacancies in any such
committee, to change its membership or to discharge the committee.
2.16 Compensation of Directors. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment
shall preclude any Director from serving the corporation in any other capacity
and receiving compensation therefor.
ARTICLE 3 - Officers
--------------------
3.1 Enumeration. The officers of the corporation shall consist of a
-----------
Chairman of the Board, a Chief Executive Officer, a President, a Treasurer, a
Clerk and such other officers with such other titles as the Board of Directors
may determine, including, but not limited to, a Chief Operating Officer, a
Secretary and one or more Vice Presidents, Assistant Treasurers, Assistant
Clerks and Assistant Secretaries.
3.2 Election. The Chairman of the Board, Chief Executive Officer,
--------
President, Treasurer and Clerk shall be elected annually by the Board of
Directors at their first meeting following the annual meeting of stockholders.
Other officers may be chosen or appointed by the Board of Directors at such
meeting or at any other meeting.
3.3 Qualification. No officer need be a director or stockholder. Any two
-------------
or more offices may be held by the same person. The Clerk shall be a resident
of Massachusetts unless the corporation has a resident agent appointed for the
purpose of service of process. Any officer may be required by the Directors to
give bond for the faithful performance of his duties to the corporation in such
amount and with such sureties as the Directors may determine. The premiums for
such bonds may be paid by the corporation.
-8-
<PAGE>
3.4 Tenure. Except as otherwise provided by law, by the Articles of
------
Organization or by these By-Laws, the Chairman of the Board, Chief Executive
Officer, President, Treasurer and Clerk shall hold office until the first
meeting of the Directors following the next annual meeting of stockholders and
until their respective successors are chosen and qualified; and all other
officers shall hold office until the first meeting of the Directors following
the annual meeting of stockholders, unless a different term is specified in the
vote choosing or appointing them, or until their respective earlier death,
resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
written resignation to the corporation at its principal office or to the
Chairman of the Board, President, Clerk or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of Directors then in office. An officer may be
removed for cause only after reasonable notice and opportunity to be heard by
the Board of Directors prior to action thereon.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or the year or
otherwise, unless such compensation is expressly provided in a duly authorized
written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of Chairman of the
Board, Chief Executive Officer, President, Treasurer and Clerk. Each such
successor shall hold office for the unexpired term of his predecessor and until
his successor is chosen and qualified, or until he sooner dies, resigns or is
removed.
3.7 Chairman of the Board. The Board of Directors shall appoint a
---------------------
Chairman of the Board. The Chairman of the Board shall preside, if present, at
all meetings of the Board of Directors and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 Chief Executive Officer. The Chief Executive Officer shall, subject
-----------------------
to the direction of the Board of Directors, have general charge and supervision
of the business of the corporation. Unless otherwise provided by the Board of
Directors, he shall preside at all meetings of stockholders, and if he is a
Director but not the
-9-
<PAGE>
Chairman of the Board, in the absence of the Chairman of the Board, at all
meetings of the Board of Directors. It shall be his duty and he shall have the
power to see that all orders, resolutions and votes of the Directors are carried
into effect. He shall from time to time report to the Board of Directors all
matters within his knowledge which the interests of the corporation may require
to be brought to its notice. Unless the Board of Directors has designated
another person as Chief Executive Officer, the Chairman of the Board shall be
the Chief Executive Officer of the corporation. The Chief Executive Officer
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 President. The President shall be the Chief Operating Officer of the
---------
corporation. The President shall, unless he is also the Chief Executive
Officer, report to the Chief Executive Officer; shall, if he is a Director but
not the Chairman of the Board, in the absence of the Chairman of the Board and
Chief Executive Officer, preside at all meetings of the Board of Directors; and
shall, subject to the direction of the Board of Directors and the Chief
Executive Officer, perform such duties and possess such powers as the Board of
Directors or the Chief Executive Officer may from time to time prescribe.
3.10 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors, the Chief Executive Officer or
the President may from time to time prescribe. In the event of the absence,
inability or refusal to act of the President, the Vice President (or if there
shall be more than one, the Vice Presidents in the order determined by the Board
of Directors) shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice President the title of
Executive Vice President, Senior Vice President or any other title selected by
the Board of Directors.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
----------------------------------
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors, the Chief Executive Officer or the President. In
addition, the Treasurer shall perform such duties and have such powers as are
incident to the office of treasurer, including without limitation the duty and
power to keep and be responsible for all funds and securities of the
corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer, the President or the
Treasurer may from time to time prescribe. In the event of the absence,
inability or refusal to act of the Treasurer, the Assistant Treasurer (or if
there shall be more than one, the
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<PAGE>
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Clerk and Assistant Clerks. The Clerk shall perform such duties and
--------------------------
shall possess such powers as the Board of Directors, the Chief Executive
Officer, or the President may from time to time prescribe. In addition, the
Clerk shall perform such duties and have such powers as are incident to the
office of the clerk, including without limitation the duty and power to give
notices of all meetings of stockholders and special meetings of the Board of
Directors, to attend all meetings of stockholders and the Board of Directors and
keep a record of the proceedings, to maintain a stock ledger and prepare lists
of stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Clerk shall perform such duties and possess such powers as
the Board of Directors, the Chief Executive Officer, the President or the Clerk
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Clerk, the Assistant Clerk (or if there shall be more than
one, the Assistant Clerks in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Clerk.
In the absence of the Clerk or any Assistant Clerk at any meeting of
stockholders or Directors, the person presiding at meeting shall designate a
temporary clerk to keep a record of the meeting.
3.13 Secretary and Assistant Secretaries. If a Secretary is appointed, he
-----------------------------------
shall attend all meetings of the Board of Directors and shall keep a record of
the meetings of the Directors. He shall, when required, notify the Directors of
their meetings, and shall possess such other powers and shall perform such other
duties as the Board of Directors, the Chief Executive Officer, or the President
may from time to time prescribe.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer, the President or the
Secretary may from time to time prescribe. In the event of the absence,
inability or refusal to act of the Secretary, the Assistant Secretary (or if
there shall be more than one, the Assistant Secretaries in the order determined
by the Board of Directors) shall perform the duties and exercise the powers of
the Secretary.
3.14 Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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<PAGE>
ARTICLE 4 - Capital Stock
--------------------------
4.1 Issue of Capital Stock. Unless otherwise voted by the stockholders,
----------------------
the whole or any part of any unissued balance of the authorized capital stock of
the corporation or the whole or any part of the capital stock of the corporation
held in its treasury may be issued or disposed of by vote of the Board of
Directors, in such manner, for such consideration and on such terms as the
Directors may determine.
4.2 Certificate of Stock. Each stockholder shall be entitled to a
--------------------
certificate of the capital stock of the corporation in such form as may be
prescribed from time to time by the Directors. The certificate shall be signed
by the Chairman of the Board, the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, but when a certificate is countersigned by
a transfer agent or a registrar, other than a Director, officer or employee of
the corporation, such signature may be a facsimile. In case any officer who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer at the
time of its issue.
Every certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Articles of Organization, the By-Laws, applicable
securities laws or any agreement to which the corporation is a party, shall have
conspicuously noted on the face or back of the certificate either the full text
of the restriction or a statement of the existence of such restrictions and a
statement that the corporation will furnish a copy of the restrictions to the
holder of such certificate upon written request and without charge. Every
certificate issued when the corporation is authorized to issue more than one
class or series of stock shall set forth on its face or back either the full
text of the preferences, voting powers, qualifications and special and relative
rights of the shares of each class and series authorized to be issued or a
statement of the existence of such preferences, powers, qualifications and
rights and a statement that the corporation will furnish a copy thereof to the
holder of such certificate upon written request and without charge.
4.3 Transfers. Subject to the restrictions, if any, stated or noted on
---------
the stock certificates, shares of stock may be transferred on the books of the
corporation by the surrender to the corporation or its transfer agent of the
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Articles of Organization or by these By-Laws, the corporation shall be entitled
to treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer,
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<PAGE>
pledge or other disposition of such stock until the shares have been transferred
on the books of the corporation in accordance with the requirements of these By-
Laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address and of his taxpayer identification number.
4.4 Record Date. The Board of Directors may fix in advance a time not
-----------
more than 60 days preceding the date of any meeting of stockholders or the date
for the payment of any dividend or the making of any distribution to
stockholders or the last day on which the consent or dissent of stockholders may
be effectively expressed for any purpose, as the record date for determining the
stockholders having the right to notice of and to vote at such meeting, and any
adjournment, or the right to receive such dividend or distribution or the right
to give such consent or dissent. In such case only stockholders of record on
such record date shall have such right, notwithstanding any transfer of stock on
the books of the corporation after the record date. Without fixing such record
date the Directors may for any of such purposes close the transfer books for all
or any part of such period.
If no record date is fixed and the transfer books are not closed, the
record date for determining the stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
before the day on which notice is given, and the record date for determining the
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors acts with respect to such purpose.
4.5 Replacement of Certificates. In case of the alleged loss or
---------------------------
destruction or the mutilation of a certificate of stock, a duplicate certificate
may be issued in place of the lost, destroyed or mutilated certificate, upon
such terms as the Directors may prescribe, including the presentation of
reasonable evidence of such loss, destruction or mutilation and the giving of
such indemnity as the Directors may require for the protection of the
corporation or any transfer agent or registrar.
ARTICLE 5 - Miscellaneous Provisions
-------------------------------------
5.1 Fiscal Year. Except as otherwise set forth in the Articles of
-----------
Organization or as otherwise determined from time to time by the Board of
Directors, the fiscal year of the corporation shall in each year end on December
31.
5.2 Seal. The seal of the corporation shall, subject to alteration by the
----
Directors, bear its name, the word "Massachusetts" and the year of its
incorporation.
5.3 Voting of Securities. Except as the Board of Directors may otherwise
--------------------
designate, the Chief Executive Officer, President or Treasurer may waive notice
of,
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<PAGE>
and act as, or appoint any person or persons to act as, proxy or attorney-in-
fact for this corporation (with or without power of substitution) at, any
meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
5.4 Corporate Records. The original, or attested copies, of the Articles
-----------------
of Organization, By-Laws and records of all meetings of the incorporators and
stockholders, and the stock records, which shall contain the names of all
stockholders and the record address and the amount of stock held by each, shall
be kept in Massachusetts at the principal office of the corporation, or at an
office of its transfer agent or of the Clerk. These copies and records need not
all be kept in the same office. They shall be available at all reasonable times
for the inspection of any stockholder for any proper purpose, but not to secure
a list of stockholders for the purpose of selling the list or copies of the list
or of using the list for a purpose other than in the interest of the applicant,
as a stockholder, relative to the affairs of the corporation.
5.5 Evidence of Authority. A certificate by the Clerk or Secretary, or an
---------------------
Assistant Clerk or Assistant Secretary, or a temporary Clerk or temporary
Secretary, as to any action taken by the stockholders, Directors, any committee
or any officer or representative of the corporation shall as to all persons who
rely on the certificate in good faith be conclusive evidence of such action.
5.6 Articles of Organization. All references in these By-Laws to the
------------------------
Articles of Organization shall be deemed to refer to the Articles of
Organization of the corporation, as amended and in effect from time to time.
5.7 Severability. Any determination that any provision of these By-Laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.8 1987 Massachusetts Control Share Acquisition Act. The 1987
------------------------------------------------
Massachusetts Control Share Acquisition Act, Chapter 110D of the Massachusetts
General Laws, as it may be amended from time to time, shall not apply to the
corporation.
ARTICLE 6 - Amendments
----------------------
These By-Laws may be amended by vote of the holders of a majority of the
shares of each class of the capital stock at the time outstanding and entitled
to vote at any annual or special meeting of stockholders, if notice of the
substance of the proposed amendment is stated in the notice of such meeting. If
authorized by the Articles of Organization, the Directors, by a majority of
their number then in office, may also make, amend or repeal these By-Laws, in
whole or in part, except with
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<PAGE>
respect to any provision of these By-Laws which by law, the Articles of
Organization or these By-Laws requires action by the stockholders.
No change in the date fixed in these By-Laws for the annual meeting of
stockholders may be made within 60 days before the date fixed in these By-Laws,
and in case of any change in such date, notice thereof shall be given to each
stockholder in person or by letter mailed to his last known post office address
at least 20 days before the new date fixed for such meeting.
Not later than the time of giving notice of the meeting of stockholders
next following the making, amending or repealing by the Directors of any By-Law,
notice stating the substance of such change shall be given to all stockholders
entitled to vote on amending the By-Laws.
Any By-Law adopted by the Directors may be amended or repealed by the
stockholders entitled to vote on amending the By-Laws.
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<PAGE>
EXHIBIT 4
[LOGO APPEARS HERE]
PERITUS SOFTWARE SERVICES, INC.
NUMBER
SHARES
COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
CUSIP ____________
SEE REVERSE FOR CERTAIN
DEFINITIONS
This Certifies that
SPECIMEN
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
PERITUS SOFTWARE SERVICES, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and held
subject to the laws of The Commonwealth of Massachusetts, the Articles of
Organization of the Corporation, as amended, and the By-Laws of the Corporation,
Ras amended.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and sealed
with the facsimile seal of the Corporation.
Dated:
/s/ /s/
--------------------- ---------------------
Treasurer President
PERITUS SOFTWARE SERVICES, INC.
Corporate Seal
Massachusetts 1991
<PAGE>
COUNTERSIGNED AND REGISTERED:
BY /s/ TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
The Corporation is authorized to issue more than one class or series of
stock that may have differing preferences, voting powers, qualifications and
special and relative rights, and upon the request of the holder of this
certificate the Corporation will furnish a copy of such preferences, voting
powers, qualifications and special and relative rights to the holder of such
certificate upon written request and without charge.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- ________________ Custodian _____________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ________________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________
_________________________________________
_______________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________________________
<PAGE>
(Signature) _______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed:
By__________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 10.1
------------
PERITUS LONG TERM INCENTIVE PLAN
January 24, 1992
1. Purposes. The purposes of the Peritus Long Term Incentive Plan (the
--------
"Plan") are (i) to enable Peritus Software Services, Inc. and its subsidiary
corporations (hereinafter referred to, unless the context otherwise requires, as
the "Company") to grant to its directors, executive officers and other selected
key employees the means to acquire a proprietary interest in the Company, in
order that such persons will have financial incentives to contribute to the
Company's growth and profitability, and (ii) to enhance the ability of the
Company to attract and retain in its employ individuals of outstanding ability
upon whom the success of the Company will depend.
2. Administration. The Plan shall be administered by the Company's board
--------------
of directors (the "Board") or, in the discretion of the Board, by a committee
(the "Committee") of not less than three members of the Board each of whom shall
not be eligible, and shall not have been eligible at any time within one year
prior to his appointment to the Committee, for selection as a person to whom an
Award (as hereinafter defined) may be granted pursuant to the Plan or any other
plan of the Company or any of its affiliates entitling the participants therein
to acquire stock, stock appreciation rights, or stock options of the Company or
any of its affiliates.
Subject to the provisions of this Plan, the Board or, by delegation from
the Board, the Committee shall have full and final authority in its discretion
to select the participants to be granted Awards, to grant Awards and to
determine the number of shares to be subject thereto, the exercise prices, the
terms of exercise, expiration dates and other pertinent provisions thereof.
3. Grant of Awards. Subject to the terms and provisions of the Plan, the
---------------
Committee may grant to any participant an award (hereinafter, an "Award")
consisting of one or more of the following: (i) incentive Stock Options, (ii)
Non-Qualified Stock Options, (iii) Stock Units, (iv) Restricted Stock, and (v)
Stock Appreciation Rights, all as more fully described herein. The grant of an
Award shall be evidenced by a written letter (an "Award Letter") in such form as
shall be approved by the Committee. Each recipient of an Award shall be
required to acknowledge receipt of the related Award Letter in writing.
However, failure to do so shall not invalidate an Award which has been duly
granted by resolution of the Committee.
4. Shares Subject to the Plan. Subject to adjustment as provided herein,
--------------------------
an aggregate of 40,000 shares of the Common Stock of the Company, without par
value (the "Common Stock"), shall be available for issuance pursuant to Awards
granted under the Plan. Such shares may be authorized and unissued shares or
shares held in the Company's treasury. All shares subject to Awards that shall
have terminated or shall have been forfeited in whole or in part or cancelled
for any reason (other
<PAGE>
than by surrender for cancellation upon any exercise or conversion of all or
part of such Awards) will be available for issuance pursuant to Awards granted
subsequently under the Plan.
5. Participants. All officers and other key employees of Peritus
------------
Software Services, Inc. and its subsidiaries shall be eligible to receive Awards
and thereby become participants in the Plan. As used herein, the term
"subsidiaries" shall include any present or future corporation which would be a
"subsidiary corporation" as that term is defined in Section 425 of the Internal
Revenue Code of 1986, as amended, (the "Code"). For purposes of determining
eligibility of individuals to receive Non-Qualified Stock Options hereunder, and
for such purposes only, the term "employee" shall include (without limitation)
persons who are employed by the Company as consultants or persons who are
engaged in providing consultative services to the Company from which services
the Company derives proprietary rights. No employee or participant shall have
any claim to be granted any Award under the Plan. In granting Awards, the
Committee may include or exclude previous participants in the Plan as the
Committee may determine. Receipt of an Award shall in no way be deemed to
constitute a contract or promise of continued employment by the Company.
6. Stock Options. (a) Stock options granted hereunder may be either
-------------
Incentive Stock Options or Non-Qualified Stock Options. As used herein, (i)
"Incentive Stock Option" means an option that is intended to meet the
requirements of Section 422A of the Code or any successor provision thereto, and
(ii) "Non-Qualified Stock Option" means an option that is not intended to be an
Incentive Stock Option. Each Award of options granted under the Plan shall be
designated by the Committee at the time of grant as either an Incentive Stock
Option or a Non-Qualified Stock Option.
(b) Stock options granted hereunder shall be subject to the following
terms and conditions and to such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall deem
desirable, all of which shall be reflected in the applicable Award Letter:
(i) The purchase price per share purchasable upon exercise of an
option (the "Exercise Price") shall be determined by the
Committee in its sole discretion at the time the Award is
granted; provided, however, that the Exercise Price for an
Incentive Stock Option shall not be less than the fair market
value of a share of Common Stock on the date of grant as
determined in good faith by the Committee, and provided
further that the Exercise Price for a Non-Qualified Stock
Option shall be not less than fifty percent (50%) of the fair
market value of a share of Common
-2-
<PAGE>
Stock on the date of grant, as determined in good faith by the
Committee.
(ii) Options shall be exercisable at such time or times as
determined by the Committee at the time of grant; provided
that no option shall be exercisable after the expiration of
ten (10) years from the date of grant. Unless otherwise
determined by the Committee at the time of grant, no Incentive
Stock Option shall be exercisable during the one (1) year
period commencing on the date of grant.
(iii) If a participant retires during the term of an option, such
option shall be exercisable by such participant only during
the three (3) months following his or her retirement (but in
no event after the expiration of the term of such option) and
only as to the number of shares, if any, as to which it was
exercisable immediately prior to such retirement
(iv) If a participant dies during the term of an option, such
option shall be exercisable by his or her executor or
administrator or, if not so exercised, by the legatees or the
distributees of his or her estate, only during the six (6)
months following his or her death (but in no event after the
expiration of the term of such option). During such six month
period, the option shall be exercisable as to the full number
of shares as to which it had not been previously exercised.
(v) If a participant ceases to be an employee of the Company for
any cause other than retirement or death during the term of an
option, such option shall be exercisable by him or her only
during the thirty (30) days following the cessation of his or
her employment (but in no event after the expiration of the
term of such option) and only as to the number of shares, if
any, as to which it was exercisable immediately prior to such
cessation of employment.
(vi) Subject to the other provisions of the Plan and the applicable
Award Letter, participants may make payment of the Exercise
Price by delivery of (A) cash, (B) a certified or bank
cashier's check, (C) shares of Common Stock, (D) when
permitted by law and the Committee, other Awards or (E) any
combination thereof, which has a fair market value equal to
the total Exercise Price, as determined in good faith by the
Committee on the date of exercise.
-3-
<PAGE>
(vii) The aggregate fair market value (determined as of the time of
grant) of the shares with respect to which Incentive Stock
Options held by any participant under the Plan (and under any
other benefit plans of Peritus Software Services, Inc. or of
any parent or subsidiary corporation of Peritus Software
Services, Inc.) which are exercisable for the first time by
such participant during any calendar year shall not exceed
$100,000 or, if different, the maximum limitation in effect at
the time of grant under Section 422A of the Code, or any
successor provision, and any regulations promulgated
thereunder. The terms of any Incentive Stock Option granted
hereunder shall comply in all respects with the provisions of
Section 422A of the Code, or any successor provision, and any
regulations promulgated thereunder.
(viii) In its sole discretion, the Committee may provide, at the time
of grant, that the shares to be issued upon an option's
exercise shall be in the form of Restricted Stock.
7. Stock Units. (a) Stock Units are contractual rights awarded to
-----------
participants pursuant to which shares may be issued as hereinafter provided.
Stock Units do not constitute securities of the Company and do not entitle the
participant to whom such Stock Units have been awarded to any right of ownership
with respect to the shares which may be issued pursuant thereto, including,
without limitation, voting rights and the right to receive ordinary cash
dividends. Awards of Stock Units may provide for the issuance of Common Stock
for no consideration other than services rendered.
(b) Subject to adjustment as provided herein, each Stock Unit awarded
hereunder shall vest over such period as the Committee shall specify at the time
of grant, and shall become convertible into shares of Common Stock over such
additional period as the Committee shall specify at the time of grant. Upon
such conversion, the participant shall be entitled to receive one share of
Common Stock per Stock Unit, plus a distribution in kind of all other property
(other than cash dividends) which the participant would have been entitled to
receive if the shares received upon the conversion of such Stock Units had been
owned throughout the period beginning on the date of the award of such Stock
Units ("the Award Date") and ending on the date of such conversion, less all
securities and property which would have been surrendered or cancelled pursuant
to such distributions.
(c) In the event of the cessation of the employment of a participant,
however caused, prior to the full vesting of his or her Stock Units, such
participant's Stock Units shall automatically either (i) be forfeited in their
entirety, or (ii) be reduced to the number determined by means of the following
formula: the total number of Stock Units originally awarded to the participant
shall be multiplied by a fraction which
-4-
<PAGE>
shall have as its numerator the number of whole years elapsed between the Award
Date and the date of cessation of employment and as its denominator the length
of the specified vesting period of such Stock Units, provided that, if the
resulting product is not a whole number, it shall be reduced to the next lowest
whole number. The Compensation Committee shall specify, in the related Award
Letter, whether forfeiture or formula reduction shall apply to an Award of Stock
Units. All Stock Units originally issued to the participant in excess of the
number determined as set forth in this paragraph shall be automatically
cancelled by the Company.
8. Restricted Stock. (a) Restricted Stock Awards may be issued hereunder
----------------
to participants, for no consideration other than services rendered, or for such
consideration as may be required by applicable law, either alone or in addition
to other Awards granted under the Plan. As used herein, "Restricted Stock"
means any share of Common Stock issued subject to the restriction that the
holder thereof may not sell, transfer, pledge, assign or otherwise hypothecate
such share and with such other restrictions as the Committee, in its sole
discretion, may impose (including, without limitation, any restriction on the
right to vote such share and the right to receive cash dividends and other
distributions with respect thereto), which restrictions may lapse separately or
in combination at such time or times, in installments or otherwise, as the
Committee may deem appropriate. The provisions of Restricted Stock Awards need
not be the same with respect to each recipient.
(b) Any Restricted Stock issued hereunder may be evidenced in such manner
as the Committee in its sole discretion shall deem appropriate, including,
without limitation, book-entry registration or issuance of a stock certificate
or certificates. In the event any stock certificate is issued in respect of
shares of Restricted Stock awarded under the Plan, such certificate shall be
registered in the name of the participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such shares.
(c) The cessation of a participant's employment by the Company at any time
during the period of any restrictions due to such participant's retirement,
permanent disability or death shall not affect the terms of any Restricted Stock
Award granted to such participant. Except as otherwise determined by the
Committee at the time of grant, upon cessation of employment for any other
reason during the period of any restrictions, all shares of Restricted Stock
still subject to restriction shall be forfeited by the participant and
reacquired by the Company. Notwithstanding the foregoing, in the event of a
participant's retirement, permanent disability or death, or in other cases of
special circumstances following the cessation of employment by a participant,
the Committee may, when it finds in its sole discretion that a waiver would be
in the best interests of the Company, waive in whole or in part any or all
remaining restrictions with respect to such participant's shares of Restricted
Stock.
-5-
<PAGE>
9. Stock Appreciation Rights. (a) Stock Appreciation Rights may be
-------------------------
granted hereunder to participants either alone or in addition to other Awards
granted under the Plan and may, but need not, relate to a specific option
granted under Section 6 hereof. As used herein, "Stock Appreciation Right"
means a right to receive, upon exercise by the participant, the excess of (i)
the fair market value of one share of Common Stock on the date of exercise over
(ii) the grant price of the right as specified by the Committee. Stock
Appreciation Rights shall be granted on such terms and conditions not
inconsistent with the Plan as the Committee may determine, all of which shall be
reflected in the applicable Award Letter. Awards of Stock Appreciation Rights
may provide for the issuance of Common Stock for no consideration other than
services rendered. The provisions of Stock Appreciation Rights need not be the
same with respect to each recipient.
(b) A Stock Appreciation Right related to a Non-Qualified Stock Option may
be granted at the same time such option is granted or at any time thereafter
before exercise or expiration of such option. Any Stock Appreciation Right
related to an Incentive Stock Option must be granted at the same time such
option is granted. The number of shares subject to Stock Appreciation Rights
shall be reduced to the extent that the related stock option is exercised or
terminated, except that, in the case of any Stock Appreciation Right granted
with respect to less than the full number of shares covered by the related
option, such Stock Appreciation Rights shall not be reduced until the exercise
or termination of the related option exceeds the number of shares not covered by
the Stock Appreciation Right. Any option related to any Stock Appreciation
Right shall no longer be exercisable to the extent the related Stock
Appreciation Right has been exercised. The Committee may, at the time of award,
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it shall deem appropriate.
(c) Stock Appreciation Rights which are related to an option shall be
exercisable only when and to the extent that the related option is exercisable.
(d) Stock Appreciation Rights which are not related to an option
("Unrelated Rights") shall be exercisable at such time or times as determined by
the Committee at the time of grant, and shall be subject to the following terms
and conditions:
(i) If a participant retires during the term of an Unrelated Right,
such Unrelated Right shall be exercisable by such participant
only during the three (3) months following his or her
retirement (but in no event after the expiration of the term of
such Unrelated Right) and only as to the number of shares, if
any, as to which it was exercisable immediately prior to such
retirement.
(ii) If a participant dies during the term of an Unrelated Right,
such Unrelated Right shall be exercisable by his or her
executor or
-6-
<PAGE>
administrator or, if not so exercised, by the legatees or the
distributees of his or her estate, only during the six (6)
months following his or her death (but in no event after the
expiration of the term of such Unrelated Right). During such
six month period, the Unrelated Right shall be exercisable as
to the full number of shares as to which it had not been
previously exercised.
(iii) If a participant ceases to be an employee of the Company for
any cause other than retirement or death during the term of an
Unrelated Right, such Unrelated Right shall be exercisable by
him or her only during the thirty (30) days following the
cessation of his or her employment (but in no event after the
expiration of the term of such Unrelated Right) and only as to
the number of shares, if any, as to which it was exercisable
immediately prior to such cessation of employment.
(e) Any payment by the Company in respect of Stock Appreciation Rights may
be made in cash or shares of Common Stock, or a combination thereof, as the
Committee, in its sole discretion, shall determine at the time of exercise.
(f) Notwithstanding the foregoing, no Stock Appreciation Right which is
granted to an executive officer or director of the Company or to a participant
who thereafter becomes an executive officer or director of the Company may be
exercised until the expiration of six (6) months from the date of its grant.
10. Nonassignability of Awards. No Award shall be assignable or
--------------------------
transferable by a participant otherwise than by will or by the laws of descent
and distribution. Each Award shall be exercisable, during the lifetime of any
participant, only by such participant, except that, if permissible under
applicable law, Awards other than Incentive Stock Options may also be exercised
by the guardian or legal representative of a participant.
11. Term of Awards. The term of each Award shall be for such period of
--------------
months or years from the date of its grant as may be determined by the
Committee; provided that in no event shall the term of any Incentive Stock
Option or any Stock Appreciation Right related to any Incentive Stock Option
exceed a period of ten (10) years from the date of its grant.
12. Cancellation of Awards. (a) In the event that the Committee shall, at
----------------------
any time prior to the issuance of shares pursuant to an Award (and regardless of
whether the participant is then in the employ of the Company), determine that
any participant, either before or after any cessation of his or her employment
by the Company, (i) has committed an act of misconduct for which he or she could
have
-7-
<PAGE>
been discharged for cause by the Company, or (ii) has participated or
engaged in any business activity determined by the Committee to be in any way
harmful or prejudicial to the interests of the Company, all Awards then
outstanding in the name of such participant shall immediately be cancelled.
(b) The Plan shall in no event be interpreted as restraining any
participant from competing with the Company after the cessation of his or her
employment by the Company. However, a participant who does compete with the
business of the Company prior to the expiration of the period of one (1) year
commencing with the date of the cessation of his or her employment by the
Company, however caused, shall ipso facto be deemed to have participated or
---- -----
engaged in a business activity harmful or prejudicial to the interests of the
Company. As used herein, the phrase "compete with the business of the Company"
shall include, without limitation, (i) participating, directly or indirectly,
whether as proprietor, officer, employee, agent or otherwise, or (ii) having a
material interest, directly or indirectly, through stock ownership (other than
ownership of less than five percent (5%) of the outstanding stock of a publicly
traded company), investment of capital, lending of money or property or
otherwise, either alone or in association with others, in the formation, funding
or operation of any type of group, business or enterprise engaged, in whole or
in part, in the manufacture and/or sale of products similar to products which
were either (x) manufactured and sold, or (y) under active development by the
Company or any partnership in which the Company had an interest during the
employment of the participant by the Company.
(c) Any determination made hereunder by the Committee shall be conclusive
and binding upon both the Company and the participant. Nothing herein shall be
deemed to relieve, release or discharge any participant from any contractual or
fiduciary obligation he or she may otherwise have to the Company.
13. Exercise of Awards. To exercise an Award, the holder shall give
------------------
written notice thereof to the Company either by delivery in hand to the
Treasurer or Assistant Treasurer of the Company or by mailing by registered mail
to the Company, marked "Attention: Treasurer," at its principal place of
business, specifying the date and type of Award and the number of shares of
Common Stock with respect to which such Award is being exercised. The date upon
which such written notice shall be duly received by the Treasurer or Assistant
Treasurer shall be deemed to be the date of exercise or conversion for all
purposes.
14. Withholding Taxes; Issuance of Stock Certificates. Notwithstanding
-------------------------------------------------
anything to the contrary hereinbefore contained, the Company shall not be
required to issue certificates for shares purchased by exercise or conversion of
an Award until (i) the full Exercise Price or other consideration due with
respect thereto, if any, has been paid, and (ii) the participant or the
participant's heirs or legal representatives, as the case may be, provide for
payment to (or withholding by) the Company of all
-8-
<PAGE>
amounts required under then applicable provisions of the Code and state and
local tax laws to be withheld with respect to such shares. Participants shall
have none of the rights of a stockholder with respect to any Award until
certificates for the shares represented thereby have been issued.
15. Conditions to Exercise or Conversion of Awards. Each participant who
----------------------------------------------
accepts delivery of shares issued pursuant to the Plan shall be deemed to have
acquired such shares for his or her own account, for investment, and not with a
view to or in connection with any distribution. As conditions to the exercise
or conversion of any Award and the issuance of shares thereunder, the Committee
may, in its discretion, require (i) that a participant sign an investment
covenant to the foregoing effect confirming that he or she will not effect any
sale, transfer, pledge, assignment or other hypothecation of such shares
(collectively, a "Transfer") prior to (A) receipt of an opinion of counsel for
the Company authorizing any proposed Transfer, (B) receipt of a "no action"
letter from the Securities and Exchange Commission permitting such Transfer, or
(C) registration of the shares under the Securities Act of 1933, as amended,
(the "Act") and (ii) that a registration statement under the Act with respect to
the Award and the shares to be issued on the exercise or conversion thereof
shall have become, and continue to be, effective. The certificates representing
shares issued pursuant to the Plan may bear an appropriate legend to the effect
that the shares have been issued subject to certain restrictions on transfer and
may be transferred only in accordance therewith.
16. Effect of Changes in Common Stock. In the event the outstanding
---------------------------------
shares of Common Stock are increased or decreased as a result of a stock
dividend, stock split, recapitalization or other means having the same effect,
the number of shares available for issuance under the Plan, the number of shares
issuable pursuant to any outstanding Award, and the Exercise Price of any option
outstanding under the Plan shall be adjusted as the Board of Directors shall
deem appropriate, in its sole discretion upon the recommendation of the
Committee and with the approval of counsel, to preserve unimpaired the rights of
the participants. Notwithstanding the foregoing, in any such event, the
Exercise Price of any outstanding option shall, in the case of an increase in
the number of shares, be proportionately reduced, and in the case of a decrease
in the number of shares, be proportionately increased. All determinations made
by the Board hereunder shall be conclusive and binding upon the participants.
17. Effect of Reorganizations. In case of any one or more
-------------------------
reclassifications, changes or exchanges of outstanding shares of Common Stock or
consolidations of the Company with, or mergers of the Company into, other
corporations, or other recapitalizations or reorganizations (other than
consolidations with a subsidiary in which the Company is the continuing
corporation and which do not result in any reclassifications, changes or
exchanges of outstanding shares of Common Stock), or in case of any one or more
sales or conveyances to another corporation of the property
-9-
<PAGE>
of the Company as an entirety, or substantially as an entirety, any and all of
which are hereinafter in this Section called "Reorganizations," a participant
shall have the right, upon any subsequent exercise or conversion of an Award, to
acquire the same kind and amount of securities and property which such
participant would then have if such participant had exercised or converted such
Award immediately before the first of any such Reorganizations and continued to
hold all securities and property which came to such participant as a result of
that and subsequent Reorganizations, less all securities and property
surrendered or cancelled pursuant to any of same, the adjustment rights in
Section 16 and this Section being continuing and cumulative, except that,
anything to the contrary herein contained notwithstanding, the Committee shall
have the right in connection with any Reorganizations, upon not less than thirty
(30) days' written notice to the participants, to accelerate the vesting
provisions of all outstanding Awards and terminate the term thereof so that, in
such event, all outstanding Awards may be exercised or converted in whole or in
part, only at a time prior to or simultaneously with the consummation of such
Reorganization. The provisions and term of Awards held by participants who are
no longer employees of the Company shall not be affected pursuant to the
preceding sentence. In any such event, such Awards may be exercised or
converted, to the extent permitted by their terms, prior to or simultaneously
with the consummation of such Reorganization.
18. Effect of Change of Control. If any individual, corporation or other
---------------------------
entity (collectively, a "Person") shall become the beneficial owner of 40% or
more of the outstanding shares of Common Stock (other than by reason of a merger
in which the Company is the continuing corporation and which does not result in
any reclassification of outstanding shares of Common Stock of the Company), then
all of the provisions set forth herein with respect to vesting, cancellation and
forfeiture shall ipso facto lapse and be of no further effect whatsoever as to
---- -----
any and all Awards then outstanding, and, upon the date such event occurs (the
"Date of Change of Control"), all Awards theretofore granted hereunder and not
fully exercisable or convertible shall, subject to the provisions of the Plan
and any other limitation applicable to such Awards, become exercisable or
convertible in full for a period of thirty (30) days following the Date of
Change of Control; provided, however, that (i) no Award shall be exercisable or
convertible by an executive officer or director of the Company, or by a person
who was an executive officer or director of the Company at the time the Award
was granted, within six (6) months of the date of grant of such Award, and (ii)
Awards of Incentive Stock Options shall become exercisable hereunder only to the
extent possible without violation of the limitations contained in clauses (ii),
(iii), (iv), (v) and (vii) of Section 6(b) hereof.
For the purpose of this Section, a Person shall be deemed to be the
beneficial owner of shares of Common Stock which are beneficially owned,
directly or indirectly, by any other Person (i) with which it or its "affiliate"
or "associate" (as hereinafter defined) has any agreement, arrangement or
understanding for the
-10-
<PAGE>
purposes of acquiring, holding, voting or disposing of Common Stock or (ii)
which is its "affiliate" or "associate." For the purposes of this Section, a
Person is an "affiliate" of another Person if the former directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the latter; and a Person is an "associate" of (x) any
corporation or organization (other than Peritus Software Services, Inc. or any
of its subsidiary corporations) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (y) any trust or estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity and (z) any relative or spouse of such person,
or any relative of such spouse, who has the same home as such person or who is a
director or officer of Peritus Software Services, Inc. or any of its subsidiary
corporations.
19. Term of the Plan. No Award shall be granted pursuant to the Plan
----------------
after January 23, 2002, but any Award theretofore granted may extend beyond that
date.
20. Amendment and Termination. The Board of Directors of the Company by
-------------------------
resolution at any time may amend, suspend or terminate the Plan, provided that
(i) no such action shall be taken which impairs the rights of any participant
under any outstanding Award, without such participant's consent, and (ii) except
in connection with an adjustment as contemplated hereunder or with the consent
of the stockholders, no such action shall be taken which increases the total
number of shares available for issuance under the Plan. The Committee may
substitute new Awards for Awards previously granted to participants, including,
without limitation, previously granted options having higher Exercise Prices.
21. Interpretation. The interpretation and construction of any provision
--------------
of the Plan and the adoption of rules and regulations for administering the Plan
shall be made by the Committee, subject, however, at all times to the final
jurisdiction which shall rest in the Board of Directors of the Company.
Determinations made by the Committee and approved by the Board of Directors with
respect to any matter or provision contained in the Plan shall be final,
conclusive and binding upon the Company and upon all participants, their heirs
and legal representatives. Any rule or regulation adopted by the Committee
(whether under the authority of this Section or Section 2 above) shall remain in
full force and effect unless and until altered, amended or repealed by the Board
of Directors.
22. Effective Date of Plan. The Plan shall not become effective, and any
----------------------
Awards granted hereunder shall not be exercisable, unless and until the Plan
shall have been duly approved by the stockholders of the Company. No Award
shall be granted, exercised or converted if such grant, exercise or conversion,
or the issuance of shares pursuant thereto, would be contrary to law or the
regulations of any duly constituted authority having jurisdiction.
-11-
<PAGE>
EXHIBIT 10.2
------------
PERITUS SOFTWARE SERVICES, INC.
1997 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 1997 Stock Incentive Plan (the "Plan") of Peritus
Software Services, Inc. , a Massachusetts corporation (the "Company"), is to
advance the interests of the Company's shareholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
shareholders. Except where the context otherwise requires, the term "Company"
shall include any present or future subsidiary corporations of Peritus Software
Services, Inc. as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other stock-
based awards (each, an "Award") under the Plan. Any person who has been granted
an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered by
------------------------------------
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. No member of the Board shall be liable for any action
or determination relating to the Plan. All decisions by the Board shall be made
in the Board's sole discretion and shall be final and binding on all persons
having or claiming any interest in the Plan or in any Award. No director or
person acting pursuant to the authority delegated by the Board shall be liable
for any action or determination under the Plan made in good faith.
<PAGE>
(b) Delegation to Officers. To the extent permitted by applicable law, the
----------------------
Board may delegate to one or more officers of the Company the power to make
Awards and exercise such other powers under the Plan as the Board may determine,
provided that the Board shall fix the maximum number of shares subject to Awards
and the maximum number of shares for any one Participant to be made by such
executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). If and when the Class
A common stock, no par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act." All references in the Plan to the "Board" shall mean a
Committee or the Board or the officer referred to in Section 3(b) to the extent
that the Board's powers or authority under the Plan have been delegated to such
Committee or executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 4(c), Awards may
----------------
be made under the Plan for up to 1,950,000 shares of Common Stock. If any Award
expires or is terminated, surrendered or canceled without having been fully
exercised or is forfeited in whole or in part or results in any Common Stock not
being issued, the unused Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan, subject, however, in the case
of Incentive Stock Options (as hereinafter defined), to any limitation required
under the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c), for
---------------------
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
participant under the Plan shall be 1,000,000 per calendar year. The per-
Participant limit described in this Section 4(b) shall be construed and applied
consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
--------------------------
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash
2
<PAGE>
dividend, (i) the number and class of securities available under this Plan, (ii)
the number and class of security and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
stock-based Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 4(c) applies and Section 8(e)(1) also applies to
any event, Section 8(e)(1) shall be applicable to such event, and this Section
4(c) shall not be applicable.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) Exercise of Option. Options may be exercised only by delivery to the
------------------
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
3
<PAGE>
(2) except as the Board may otherwise provide in an Option, delivery
of an irrevocable and unconditional undertaking by a credit worthy broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
delivery by the Participant to the Company of a copy of irrevocable and
unconditional instructions to a credit worthy broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price;
(3) (i) by delivery of shares of Common Stock owned by the Participant
valued at their fair market value as determined by the Board in good faith
("Fair Market Value"), which Common Stock was owned by the Participant at least
six months prior to such delivery, (ii) by delivery of a promissory note of the
Participant to the Company on terms determined by the Board, or (iii) by payment
of such other lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
4
<PAGE>
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
-------------------------
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a
-------------
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to, and not inconsistent with, those
set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each type
----------------
of Award may be made alone in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board need
not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Acquisition Events
------------------
(1) Consequences of Acquisition Events. Except to the extent
-----------------------------------
otherwise provided in the instrument evidencing the Award or in any other
agreement between the Participant and the Company, upon the occurrence of an
Acquisition Event or with respect to Options or any other similar Awards only,
upon the execution by the Company of any agreement with respect to an
Acquisition Event, (i) the Board shall cause all Options then outstanding to
become immediately exercisable in full as of a specified date (the "Acceleration
Date") prior to the Acquisition Event and shall provide written notice to the
Participants informing them
5
<PAGE>
that all such options have become exercisable in full and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants between the Acceleration Date and the
consummation of such Acquisition Event; (ii) all Restricted Stock Awards then
outstanding shall become immediately free of all restrictions; (iii) all other
stock-based Awards all become immediately exercisable, realizable or vested in
full, or shall be immediately free of all restrictions or conditions, as the
case may be.
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
60% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of the
Company; (c) the complete liquidation of the Company; or (d) the acquisition of
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities (other than through a merger or
consolidation or an acquisition of securities directly from the Company) by any
"person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act
other than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any corporation owned directly or
indirectly by the shareholders of the Company in substantially the same
proportion as their ownership of stock of the Company.
(2) Assumption of Options Upon Certain Events. The Board may grant
------------------------------------------
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
6
<PAGE>
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of all restrictions or that any other stock-based Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
9. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Board. No Awards shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's shareholders, but Awards previously granted may extend beyond
that date.
7
<PAGE>
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirements. Amendments requiring stockholder
approval shall become effective when adopted by the Board, but no Award granted
to a Participant designated as subject to Section 162(m) by the Board shall
become exercisable, realizable or vested (to the extent that such amendment to
the Plan was required to grant such Award to a particular Participant) unless
and until such amendment shall have been approved by the Company's shareholders.
(e) Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the Commonwealth of Massachusetts, without regard to any applicable conflicts of
law.
Adopted by the Board of Directors
on ______________________, 1997
Approved by the Stockholders on
_________________________, 1997
8
<PAGE>
EXHIBIT 10.3
PERITUS SOFTWARE SERVICES, INC.
1997 DIRECTOR STOCK OPTION PLAN
-------------------------------
1. Purpose
-------
The purpose of this 1997 Director Stock Option Plan (the "Plan") of Peritus
Software Services, Inc., a Massachusetts corporation (the "Company"), is to
advance the interests of the Company's shareholders by enhancing the Company's
ability to attract, retain and motivate outside directors of the Company by
providing such directors with equity ownership opportunities and performance-
based incentives and thereby better aligning the interests of such directors
with those of the Company's shareholders.
2. Eligibility
-----------
Each Director of the Company who is not an employee of the Company (an
"Eligible Director") is eligible to be granted options, under the Plan. Any
person who has been granted an option under the Plan shall be deemed a
"Participant".
3. Administration
--------------
The Plan will be administered by the Board of Directors of the Company
(the "Board"). Grants of stock options under the Plan and the amount and nature
of the grants to be awarded shall be automatic and nondiscretionary in
accordance with Section 5. However, the Board shall have authority to adopt,
amend and repeal such administrative rules, guidelines and practices relating to
the Plan as it shall deem advisable. The Board may correct any defect, supply
any omission or reconcile any inconsistency in the Plan or any option in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and it shall be the sole and final judge of such expediency. No member of the
Board shall be liable for any action or determination relating to the Plan. All
decisions by the Board shall be made in the Board's sole discretion and shall be
final and binding on all persons having or claiming any interest in the Plan or
in any Award. No director or person acting pursuant to the authority delegated
by the Board shall be liable for any action or determination under the Plan made
in good faith.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 4(b), options
----------------
may be made under the Plan for up to 200,000 shares of the Class A common stock,
no par value per share, of the Company (the "Common Stock"). If any option
expires or is terminated, surrendered or canceled without having been fully
exercised or is forfeited in whole or in part or results in any Common Stock not
being issued, the
<PAGE>
unused Common Stock covered by such option shall again be available for the
grant of options under the Plan. Shares issued under the Plan may consist in
whole or in part of authorized but unissued shares or treasury shares.
(b) Adjustment to Common Stock. In the event of any stock split, stock
--------------------------
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of securities subject to future
option grants, and (iii) the number and class of securities and exercise price
per share subject to each outstanding option shall be appropriately adjusted by
the Company (or substituted options may be made, if applicable) to the extent
the Board shall determine, in good faith, that such an adjustment (or
substitution) is necessary and appropriate. If this Section 4(b) applies and
Section 6(c)(1) also applies to any event, Section 6(c)(1) shall be applicable
to such event, and this Section 4(b) shall not be applicable.
5. Stock Options
-------------
(a) Automatic Grants.
----------------
(i) Each Eligible Director who was serving on the Board on the
effective date of the initial public offering of the Common
Stock (the "Effective Date") (an "IPO Director") shall be
granted an option to purchase 15,000 shares of Common Stock on
the Effective Date.
(ii) Each IPO Director who is serving on the Board at the
adjournment of the annual meeting of the Company held in the
year 1998 or at the adjournment of any subsequent annual
meeting shall be granted an option to purchase 3,000 shares of
Common Stock at the close of business on the date of such
adjournment.
(iii) Each Eligible Director who is not an IPO Director shall be
granted an option to purchase 15,000 shares of Common Stock at
the close of business on the date such Eligible Director is
first elected to serve on the Board.
(iv) Each Eligible Director who is not an IPO Director and who is
serving on the Board at the adjournment of any annual meeting
which begins after the date of his or her election shall be
granted an option to purchase 3,000 shares of Common Stock at
the close of business on the date of such adjournment.
2
<PAGE>
(b) Option Exercise Price. The option exercise price per share for each
---------------------
option granted under the Plan shall equal (i) the last reported sales price per
share of the Company's Common Stock as listed on a nationally recognized
securities exchange, on the date of grant (or, if no such price is reported on
such date, such price as reported on the nearest preceding day); or (ii) the
fair market value of the stock on the date of grant, as determined by the Board
of Directors, if the Common Stock is not publicly traded. Notwithstanding the
preceding sentence, the option exercise price per share for each option granted
on the Effective Date shall be the price per share for which the Common Stock
was offered to the public.
(c) Exercise Period. Each option granted on the Effective Date shall vest
---------------
and be exercisable on a cumulative basis as to one-third of the shares subject
to such option on each of the first, second and third anniversaries of the date
of the grant of such option, provided that, subject to the provisions of
--------
Sections 5(e) and 5(f), no option may be exercised more than 90 days after the
optionee ceases to serve as a director of the Company and such option may only
be exercised for the purchase of such number of shares as were vested and
exercisable at the time of such termination. No option shall be exercisable
after the expiration of ten (10) years from the date of grant or prior to
approval of the Plan by the stockholders of the Company.
(d) Exercise Period Upon Retirement. Notwithstanding the provisions of
-------------------------------
Section 5(d), in the event an optionee ceases to be a director by reason of
retirement age determined by the Company or by reason of the Company's failure
to nominate the optionee for reelection as a director (other than for such
director's refusal to serve as a director), each option then held by such
director shall, at the time he or she ceases to be a director, be exercisable
for that number of shares of Common Stock which equals the sum of (i) the shares
which are then vested and exercisable and (ii) the shares which would otherwise
become vested and exercisable at the next following anniversary of the date of
grant of the option.
(e) Exercise Period Upon Death or Disability. Notwithstanding the
----------------------------------------
provisions of Section 5(d), any option granted under the Plan:
(i) may be exercised in full by an optionee who becomes disabled
(within the meaning of Section 22(e)(3) of the Code or any
successor provision thereto) while serving as a director of the
Company; or
(ii) may be exercised
(x) in full upon the death of an optionee while serving as a
director of the Company, or
3
<PAGE>
(y) to the extent then exercisable upon the death of an
optionee within 90 days of ceasing to serve as a director
of the Company,
by the person to whom it is transferred by will, by the laws of
descent and distribution, or by written designation of
beneficiary filed with the Company;
in each such case within the period of one year after the date the optionee
ceases to be such a director by reason of such death or disability; provided,
that no option shall be exercisable after the expiration of ten (10) years from
the date of grant.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option, delivery
of an irrevocable and unconditional undertaking by a credit worthy broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
delivery by the Participant to the Company of a copy of irrevocable and
unconditional instructions to a credit worthy broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price;
(3) (i) by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the Participant at
least six months prior to such delivery, (ii) by delivery of a promissory note
of the Participant to the Company on terms determined by the Board, or (iii) by
payment of such other lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. General Provisions Applicable to Options
----------------------------------------
(a) Transferability of Options. Except as the Board may otherwise
--------------------------
determine or provide in an option agreement, options shall not be sold,
assigned, transferred, pledged or otherwise encumbered by the person to whom
they are granted, either voluntarily or by operation of law, except by will or
the laws of descent and distribution, and, during the life of the Participant,
shall be exercisable only by the Participant. References to a Participant, to
the extent relevant in the context, shall include references to authorized
transferees.
(b) Documentation. Each option under the Plan shall be evidenced by a
-------------
4
<PAGE>
written instrument in such form as the Board shall determine. Each option may
contain terms and conditions in addition to, and not inconsistent with, those
set forth in the Plan.
(c) Acquisition Events. Except to the extent otherwise provided in the
-------------------
instrument evidencing the Award or in any other agreement between the
Participant and the Company, upon the occurrence of an Acquisition Event or with
respect to Options or any other similar Awards only, upon the execution by the
Company of any agreement with respect to an Acquisition Event, (i) the Board
shall cause all Options then outstanding to become immediately exercisable in
full as of a specified date (the "Acceleration Date") prior to the Acquisition
Event, and shall provide written notice to the Participants informing them that
all such options have become exercisable in full and will terminate immediately
prior to the consummation of such Acquisition Event, except to the extent
exercised by the Participants between the Acceleration Date and the consummation
of such Acquisition Event; (ii) all Restricted Stock Awards then outstanding
shall become immediately free of all restrictions; (iii) all other stock-based
Awards all become immediately exercisable, realizable or vested in full, or
shall be immediately free of all restrictions or conditions, as the case may be.
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
60% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of the
Company; (c) the complete liquidation of the Company; or (d) the acquisition of
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities (other than through a merger or
consolidation or an acquisition of securities directly from the Company) by any
"person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act
other than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any corporation owned directly or
indirectly by the shareholders of the Company in substantially the same
proportion as their ownership of stock of the Company.
(d) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law,
deduct any such tax obligations from
5
<PAGE>
any payment of any kind otherwise due to a Participant.
(e) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(f) Acceleration. The Board may at any time provide that any Options
------------
shall become immediately exercisable in full or in part.
7. Miscellaneous
-------------
(a) No Right To Continue as a Director. Neither the Plan nor the granting
----------------------------------
of an option nor any other action taken pursuant to the Plan shall constitute or
be evidence of any agreement or understanding, express or implied, that the
Company will retain a director for any period of time.
(b) No Rights As Stockholder. No Participant or Designated Beneficiary
------------------------
shall have any rights as a stockholder with respect to any shares of Common
Stock to be distributed with respect to an option until becoming the record
holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Board. No options shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's shareholders, but options previously granted may extend beyond
that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirements. Amendments requiring stockholder
approval shall become effective when adopted by the Board.
6
<PAGE>
(e) Governing Law. The provisions of the Plan and all options made
--------------
hereunder shall be governed by and interpreted in accordance with the laws of
the Commonwealth of Massachusetts, without regard to any applicable conflicts of
law.
Adopted by the Board of Directors
on May 5, 1997
Approved by the Stockholders on
_________________________, 1997
7
<PAGE>
EXHIBIT 10.4
------------
PERITUS SOFTWARE SERVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
_____________________, 1997
The purpose of this Plan is to provide eligible employees of Peritus
Software Services, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's Class A common stock, no par
value (the "Common Stock"), commencing on October 1, 1997. Two hundred thousand
(200,000) shares of Common Stock in the aggregate have been approved for this
purpose.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
-----------
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week; and
(b) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
3. Offerings. The Company will make four offerings ("Offerings") to
---------
employees to purchase stock under this Plan. Unless the Board determines
otherwise, Offerings will begin each October 1 and April 1, or the first
business day
<PAGE>
thereafter (the "Offering Commencement Dates") and each Offering Commencement
Date will begin a 6-month period (a "Plan Period") during which payroll
deductions will be made and held for the purchase of Common Stock at the end of
the Plan Period. The first Plan Period shall begin on October 1, 1997 and end on
March 31, 1997. The last Plan Period shall begin on April 1, 1999 and end on
March 31, 1999 unless the Board determines otherwise. The maximum number of
shares available under each Offering shall not exceed 50,000 shares during each
Plan Period together with any shares remaining unsold from any prior Plan
Period. If the total number of shares for which options are exercised exceeds
the maximum number available for each Plan Period, the Board or Committee shall
make a pro-rata allocation of the shares available and the excess payroll
deduction shall be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock shall
be carried forward into the employee's payroll deduction account for the next
Offering. If the employee elects to discontinue participation in the Plan, such
amount shall promptly be refunded to the employee, without interest.
4. Participation. An employee eligible on the Offering Commencement Date
-------------
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least 20 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation received
by the employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
5. Deductions. The Company will maintain payroll deduction accounts for
----------
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction of any whole number percentage of
Compensation from 1% through 10% of Compensation with any change in compensation
during the Plan Period to result in an automatic corresponding change in the
dollar amount withheld. An employee's Compensation shall be the employee's Base
Pay. An employee's Base Pay is his or her regular straight-time earnings, as
the same may be adjusted from time to time, and amounts paid for vacation,
holiday, sick time and short-term disability. Base Pay excludes all special
payments including the following without limitation: overtime, incentive
compensation, bonuses, sales commissions, automobile allowances, relocation
expense reimbursements, insurance payments made pursuant to any long-term
disability policies and any other type of special payment.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other stock
purchase plan of the Company and its subsidiaries, to accrue at a rate which
exceeds $25,000 of fair market value of such Common Stock (determined at the
Offering
-2-
<PAGE>
Commencement Date of the Plan Period) for each calendar year in which the Option
is outstanding at any time.
6. Deduction Changes. An employee may not increase or decrease his
-----------------
payroll deduction during a Plan Period. However, an employee may discontinue
his payroll deduction once during any Plan Period, by filing a new payroll
deduction authorization form. If an employee elects to discontinue his payroll
deductions during a Plan Period, such election shall constitute an election to
withdraw his funds pursuant to Section 8 hereof.
7. Interest. Interest will not be paid on any employee accounts, except
--------
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. Withdrawal of Funds. An employee may at any time twenty (20) days
-------------------
prior to the close of business on the last business day in a Plan Period and for
any reason permanently draw out the balance accumulated in the employee's
account and thereby withdraw from participation in an Offering. Partial
withdrawals are not permitted. The employee may not begin participation again
during the remainder of the Plan Period. The employee may participate in any
subsequent Offering by filing a new payroll authorization form no later than 20
days prior to the beginning date of such Offering.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
------------------
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
reserved for the purposes of the Plan as does not exceed the number of shares
determined by dividing $12,500 by the Average Market Price on the Offering
Commencement Date of such Plan Period. The Average Market Price on any date
shall be (a) the average (on that date) of the high and low prices of the Common
Stock on any national securities exchange on which the Common Stock is listed,
(b) the last reported sale price of the Common Stock on the Nasdaq National
Market or (c) the average of the closing bid and asked prices last quoted on
that date in the over-the-counter-market, whichever is applicable, as published
in The Wall Street Journal. If no sales of Common Stock were made on such a day,
-----------------------
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
The purchase price for each share purchased (the "Option Price") will be
85% of the Average Market Price of the Common Stock on (i) the first business
day of such Plan Period or (ii) the Exercise Date, whichever is less. Each
employee who
-3-
<PAGE>
continues to be a participant in the Plan on the Exercise Date shall be deemed
to have exercised his Option at the Option Price on such date and shall be
deemed to have purchased from the Company the number of full shares of Common
Stock reserved for the purpose of the Plan that his accumulated payroll
deductions on such date will pay for pursuant to the formula set forth above
(but not in excess of the maximum number determined in the manner set forth
above). The Board may set a higher purchase price for an Offering at any time at
least 30 days prior to the Offering Commencement Date of such Offering.
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock will
be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the street
name of a brokerage firm, bank or other nominee holder designated by the
employee.
11. Rights on Retirement, Death or Termination of Employment. In the
--------------------------------------------------------
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
Employment shall be defined in accordance with Treasury Regulation (S) 1.421-
7(h).
12. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
-4-
<PAGE>
13. Rights Not Transferable. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
--------------------
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock,
such adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger. If the Company shall at any time merge or consolidate with
------
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Committee shall take such steps in
connection with such merger as the Committee shall deem necessary to assure that
the provisions of Paragraph 15 shall thereafter be applicable, as nearly as
reasonably may be, in relation to the said securities or property as to which
such holder of such Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (c) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an
-5-
<PAGE>
Option shall have the right to exercise such Option in full based on payroll
deductions then credited to his account as of a date determined by the Board or
the Committee, which date shall not be less than ten (10) days preceding the
effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
---------------------
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 16 of the Exchange Act and the rules promulgated thereunder, as in
effect from time to time, or Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares of
-------------------
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by
-----------------------
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the Nasdaq National Market and the approval of all
governmental authorities required in connection with the authorization, issuance
or sale of such stock.
The Plan shall be governed by Massachusetts law except to the extent that
such law is preempted by federal law.
The Plan is intended to comply with the provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934. Any provision
inconsistent with such Rule shall to that extent be inoperative and shall not
affect the validity of the Plan.
21. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. Notification upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
-6-
<PAGE>
23. Effective Date and Approval of Shareholders. The Plan as amended
-------------------------------------------
hereby shall take effect on __________________, 1997, subject to approval by
the shareholders of the Company as required by Section 423 of the Code, which
approval must occur within twelve months of the adoption of such amendment by
the Board.
Adopted by the Board of Directors
on ________________, 1997
Approved by the shareholders on
___________________, 1997
-7-
<PAGE>
EXHIBIT 10.5
------------
LEASE
ARTICLE I: Reference Data
--------------------------
1.1 Subjects Referred To. Each reference in this Lease to any of the
following subjects shall be construed to incorporate the data stated for that
subject in this Section 1.1.
Date of this Lease: February 1, 1995
Premises: 36,166 square feet in the building ("Building") at 300
Concord Road, Billerica, as shown on the Plan attached
hereto as Exhibit A, together with the right to use, in
common with others entitled thereto, the Parking Spaces
(as defined below) access drives, sidewalks, lobbies,
lavatories and elevators serving the Building
Landlord: Wang Laboratories, Inc.
Original Address One Industrial Avenue
of Landlord: Lowell, MA 01851
Attn: General Counsel
with a copy to:
One Industrial Avenue
Lowell, MA 01851
Attn: Corporate Real Estate
Landlord's Construction
Representative: Michael Farley
Tenant: Peritus Software Services, Inc.
Original Address 164 Middlesex Turnpike
of Tenant: Burlington, MA 01803
Attn: Controller
Tenant's Construction Allen Deary
Representative:
Term: 4 years
Delivery Date: January 23, 1995
Annual Fixed Rent Rate: $469,435.00 ($12.98 per square foot)
Monthly Rent Payment: $39,119.58 - $252 = $37,867
Includes 12 months of furniture lease that is directed
as capital (105,232/7)=$75,033 yr. or $1,253 a month
<PAGE>
Permitted Uses: general office and computer software research and
development
Comprehensive General $2,000,000.00 combined single limit
Liability Insurance
Limit:
Parking Spaces: 100 parking spaces, in common with others entitled to
use the same, located in the parking lot serving the
Building; included in the 100 parking spaces are the
parking spaces located in front of the connector
portion of Building, as to which Tenant shall have sole
and exclusive use
1.2 Exhibits. The Exhibits listed below in this section are incorporated
in this Lease by reference and are to be construed as a part of this Lease:
EXHIBIT A. Plan showing the Premises
EXHIBIT B. Description of Landlord's Work.
EXHIBIT C. Description of Tenant's Work.
EXHIBIT D. Landlord's Services.
2
<PAGE>
1.3 Table of Contents
<TABLE>
<S>
ARTICLE I: Reference Data <C>
- --------------------------
1.1 Subjects Referred To............................................ 1
1.2 Exhibits........................................................ 2
1.3 Table of Contents............................................... 3
ARTICLE II: Premises and Term
- ------------------------------
2.1 Premises........................................................ 5
2.2 Term............................................................ 5
ARTICLE III: Improvements
- --------------------------
3.1 Performance of Work and Approval of Landlord's Work............. 5
3.2 Pre-Commencement Work by Tenant................................. 6
3.3 Acceptance of Premises.......................................... 6
3.4 Construction Representatives.................................... 7
3.5 Landlord's Guarantee of Construction............................ 7
3.6 Acceptance of Premises.......................................... 7
ARTICLE IV: Rent
- -----------------
4.1 The Fixed Rent.................................................. 7
4.2 Additional Rent................................................. 8
4.3 Late Payment of Rent............................................ 8
ARTICLE V: Tenant's Additional Covenants
- -----------------------------------------
5.1 Affirmative Covenants........................................... 8
5.1.1 Perform Obligations............................................. 8
5.1.2 Use............................................................. 8
5.1.3 Repair and Maintenance.......................................... 8
5.1.4 Compliance with Law............................................. 9
5.1.5 Tenant's Work................................................... 9
5.1.6 Indemnity....................................................... 10
5.1.7 Landlord's Right to Enter....................................... 10
5.1.8 Personal Property at Tenant's Risk.............................. 10
5.1.9 Payment of Landlord's Cost of Curing Default.................... 10
5.1.10 Yield Up........................................................ 11
5.1.11 Estoppel Certificate............................................ 11
5.1.12 Landlord's Expenses Re Consents................................. 12
5.1.13 Financial Statements............................................ 12
5.1.14 Insurance....................................................... 12
5.2 Negative Covenants.............................................. 14
5.2.1 Assignment and Subletting....................................... 14
5.2.2 Overloading and Nuisance........................................ 16
5.2.3 Installation, Alterations or Additions.......................... 16
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI: Casualty or Taking
- -------------------------------
6.1 Termination Rights.............................................. 16
6.2 Award........................................................... 18
ARTICLE VII: Defaults
- ----------------------
7.1 Events of Default............................................... 18
7.2 Remedies........................................................ 19
7.3 Remedies Cumulative............................................. 20
7.4 Landlord's Right to Cure Defaults............................... 20
7.5 Effect of Waivers of Default.................................... 21
7.6 No Accord and Satisfaction...................................... 21
ARTICLE VIII: Mortgages
- ------------------------
8.1 Rights of Mortgage Holders...................................... 21
8.2 Lease Superior or Subordinate to Mortgages...................... 22
ARTICLE IX: Miscellaneous Provisions
- -------------------------------------
9.1 Notices from One Party to the Other............................. 23
9.2 Quiet Enjoyment................................................. 23
9.3 Lease not to be Recorded........................................ 23
9.4 Bind and Inure.................................................. 24
9.5 Acts of God..................................................... 24
9.6 Landlord's Default.............................................. 24
9.7 Brokerage....................................................... 25
9.8 Applicable Law and Construction................................. 25
9.8.1 Applicable Law.................................................. 25
9.8.2 No Other Agreement.............................................. 25
9.8.3 No Representations by Landlord.................................. 26
9.8.4 Titles.......................................................... 26
9.8.5 "Landlord" and "Tenant"......................................... 26
9.9 Submission not an Offer......................................... 26
9.10 Signs........................................................... 26
9.11 Costs and Expenses of Enforcement............................... 27
</TABLE>
4
<PAGE>
ARTICLE II: Premises and Term
------------------------------
2.1 Premises. Landlord hereby leases and demises to Tenant and Tenant
hereby leases from Landlord, subject to and with the benefit of the terms,
covenants, conditions and provisions of this Lease, the Premises.
2.2 Term. TO HAVE AND TO HOLD for a term beginning on the earlier of (a)
the expiration of five days after Tenant has received notice from Landlord that
the work to be performed by Landlord pursuant to Exhibit B has been
substantially completed or (b) the opening by Tenant of its business in the
Premises, (the "Commencement Date") and continuing for the Term, unless sooner
terminated as hereinafter provided. The term "substantially completed" as used
herein shall mean that the work to be performed by Landlord pursuant to Exhibit
B has been completed with the exception of: (a) minor items which can be fully
completed without material interference with the use of the Premises by Tenant
for the Permitted Uses, (b) other items which because of the season or weather
or the nature of the item are not practicable to do at the time and (c) items
which are incomplete because of Tenant Delays, which shall mean (i) the Tenant's
failure to timely submit or approve plans hereunder or (ii) the Landlord's
inability to timely obtain or install materials, fixtures or equipment requested
by the Tenant which are not included in the work to be performed by Landlord
pursuant to Exhibit B or (iii) change orders submitted by Tenant for further
alterations or additions. When the dates of the beginning and end of the Term
have been determined such dates shall be evidenced by a document in form for
recording executed by Landlord and Tenant and delivered each to the other.
ARTICLE III: Improvements
--------------------------
3.1 Performance of Work and Approval of Landlord's Work. Landlord shall
cause to be performed the work required by Exhibit B ("Landlord's Work"). All
such work shall be done in a good and workmanlike manner employing good
materials and so as to conform to all applicable governmental laws, ordinances
and regulations. Tenant agrees that Landlord may make any changes in such work
which may become reasonably necessary, other than substantial changes, without
approval of Tenant, provided notice is promptly given to Tenant; and Landlord
may make substantial changes in such work, with the written approval of Tenant,
which Tenant agrees will not be unreasonably withheld. Landlord's Work shall be
substantially completed by the Delivery Date, subject to the provisions of
Section 9.5 hereof. Landlord agrees that as of the Commencement Date the access
and other common areas appurtenant to the Premises will be in compliance with
the American's with Disabilities Act and Tenant agrees that modifications to the
Premises that may be required under the American's with
5
<PAGE>
Disabilities Act because of the disability of a particular employee of Tenant
shall be made by Tenant at its expense.
Landlord and Tenant acknowledge that included in the Landlord's Work is the
installation of certain Herman Miller Systems Furniture (the "Miller
Furniture"). Landlord has purchased the Miller Furniture and amortized the cost
of the same over seven years so that the annual rent for each year of the Term
includes 14.29% of the partition cost. Accordingly, at the expiration of the
Term, and provided no Event of Default has occurred that has not been cured at
the expiration of the Term, Landlord agrees Tenant may either (i) remove 57
percent of Miller Furniture from the Premises, or (ii) pay Landlord $105,232.00,
which will be the remaining unamortized cost of the Miller Furniture at the end
of the Term, and thereafter remove all of the Miller Furniture, in either case
such removal to be completed not more than 30 days prior to the expiration of
the Term and the Premises are to be otherwise in the condition required by
Section 5.1.10.
3.2 Pre-Commencement Work by Tenant. Tenant agrees that it will,
proceeding with all reasonable dispatch from the time it receives from Landlord
a notice that the Premises are ready for work by Tenant, perform the work to be
done by Tenant so as to ready the Premises for the opening by Tenant of its
business in the Premises, including, without limitation, the work specified in
Exhibit C, provided that no other work shall be done or fixtures or equipment
installed by Tenant except with the prior written approval of Landlord and
provided further that all work by Tenant shall be done in accordance with
Section 5.1.5.
During the period of occupancy of the Premises by Tenant prior to the
Commencement Date, all provisions of this Lease except the provisions relating
to the payment of rent shall apply to the extent that said provisions may be
made applicable to said period.
3.3 Acceptance of the Premises. Tenant or its representatives may enter
upon the Premises during the progress of Landlord's Work to inspect the progress
thereof and to determine if the work is being performed in accordance with the
requirements of Section 3.1. Tenant shall promptly give to Landlord notices of
any alleged failure by Landlord to comply with those requirements.
Landlord's Work shall be deemed approved by Tenant when Tenant commences
occupancy of the Premises for business purposes except for items of Landlord's
Work which are uncompleted or do not conform to Exhibit B and as to which Tenant
shall, in either case, have given notice to Landlord prior to such commencement
of occupancy. If Tenant shall not have commenced occupancy of the Premises for
business purposes within 30 days after the
6
<PAGE>
Commencement Date, a certificate of completion by a licensed architect or
registered engineer shall be conclusive evidence that Landlord's Work has been
completed except for items stated in such certificate to be incomplete or not in
conformity with Exhibit B.
3.4 Construction Representatives. Each party authorizes the other to rely
in connection with plans and construction upon approval and other actions on the
party's behalf by any Construction Representative of the party named in Section
1.1 or any person hereafter designated in substitution or addition by notice to
the party relying.
3.5 Landlord's Guarantee of Construction. Landlord agrees to correct any
defects due to faulty workmanship or materials in Landlord's Work, provided
Tenant shall have given written notice of such defects to Landlord prior to the
first anniversary of the Commencement Date. Except for the Landlord's Work, the
Premises are leased to Tenant in "AS IS" and "WHERE IS" condition, without
representation or warranty of any kind.
3.6 Repair and Maintenance. Except as otherwise provided in Section 3.5
and Article VI, Landlord shall keep the exterior of the Premises, the roof and
structural components of the Building, and all heating, plumbing, hot water,
ventilating, electrical, air-conditioning, security, alarm, elevator, mechanical
and other fixtures and equipment now or hereafter on the Premises in good order,
condition and repair and in at least as good order, condition and repair as they
are in on the Commencement Date or may be put in during the Term, reasonable use
and wear only excepted; Landlord shall maintain in good condition all lawns and
planted areas and keep in good repair and clean and neat and free of snow and
ice all surfaced roadways, walks, and parking and loading areas; Landlord shall
provide the services set forth in Exhibit D. Landlord shall not be liable for
any interruption or failure in the supply of any utility service to the Premises
for any reason other than for nonpayment of utilities, and no rent shall be
abated on account thereof, and no such interruption shall give rise to a claim
by Tenant of actual or constructive eviction, but Landlord agrees to use
reasonable efforts to minimize any such interruptions that are within the
control of Landlord.
ARTICLE IV: Rent
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4.1 The Fixed Rent. Tenant covenants and agrees to pay rent to Landlord
at the Original Address of Landlord or at such other place or to such other
person or entity as Landlord may by notice to Tenant from time to time direct,
at the Annual Fixed Rent Rate, in equal installments of 1/12th of the Annual
Fixed Rent Rate in advance on the first day of each calendar month included in
the Term; and for any portion of a calendar month at
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the beginning or end of the Term, at that rate payable in advance for such
portion.
4.2 Additional Rent. Any and all other amounts to be paid by Tenant to
Landlord shall be paid as additional rent at the time specified herein
("Additional Rent"). This Lease is a gross lease, and Tenant shall not be
obligated to pay any charge or bear any expense whatsoever against or with
respect to the Premises except to the extent hereinafter provided. All charges
for real estate taxes, cleaning, snow plowing, and utilities (except for
telephone, which shall be paid by Tenant) are included in the rent and shall be
paid by Landlord when due. The rent payable hereunder shall not be subject to
any reduction or offset whatsoever on account of any such charge or otherwise
except as hereinafter provided.
4.3 Late Payment of Rent. If any installment of Fixed Rent or payment of
Additional Rent is paid after the date the same was due, it shall bear interest
from the due date at the prime commercial rate of The First National Bank of
Boston, as it may be adjusted from time to time, plus one percent per annum, or,
in the event of Tenant's default under clauses (b) through (f) inclusive of
Section 7.1, plus two percent per annum, but in no event more than the maximum
rate of interest allowed by law, the payment of which shall be Additional Rent.
ARTICLE V: Tenant's Additional Covenants
-----------------------------------------
5.1 Affirmative Covenants. Tenant covenants at its sole expense at all
times during the Term and for such prior or subsequent time as Tenant occupies
the Premises or any part thereof:
5.1.1 Perform Obligations. To perform promptly all of the obligations of
Tenant set forth in this Lease; and to pay when due the Fixed Rent and
Additional Rent and all charges, rates and other sums which by the terms of this
Lease are to be paid by Tenant.
5.1.2 Use. To use the Premises only for the Permitted Uses, and from time
to time to procure all licenses and permits necessary therefor at Tenant's sole
expense. Landlord agrees to reasonably cooperate with Tenant, at Tenants
expense, in obtaining such licenses and permits.
5.1.3 Repair and Maintenance. Except as otherwise provided in Section 3.5
and Article VI, to keep the Premises in good order, condition and repair and in
at least as good order, condition and repair as they are in on the Commencement
Date or may be put in during the Term, and suitable for suburban office use,
reasonable use and wear only excepted.
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5.1.4 Compliance with Law. To make all repairs, alterations, additions or
replacements to the Premises required by any law or ordinance or any order or
regulation of any public authority, except that any such repairs, alterations,
additions or replacements that are so required to the HVAC or other Building
systems, structural portions of the Building, or other items required to be
maintained by Landlord hereunder shall be made by Landlord; to keep the Premises
equipped with all safety equipment so required, except for equipment required to
be maintained by Landlord hereunder; to pay all municipal, county, or state
taxes assessed against the leasehold interest hereunder, or against personal
property of any kind on or about the Premises; and to comply with the orders,
regulations, variances, licenses and permits of or granted by governmental
authorities with respect to zoning, building, fire, health and other codes,
regulations, ordinances or laws applicable to the Premises, and the condition,
use or occupancy thereof.
5.1.5 Tenant's Work. To procure at Tenant's sole expense all necessary
permits and licenses before undertaking any work on the Premises, provided that
Landlord agrees to reasonably cooperate with Tenant, at Tenants expense, in
obtaining such licenses and permits; to do all such work in compliance with the
applicable provisions of Sections 3.2 and 5.2.3 hereof; to do all such work in a
good and workmanlike manner employing materials of good quality and so as to
conform with all applicable zoning, building, fire, health and other codes,
regulations, ordinances and laws; to furnish to Landlord prior to the
commencement of any such work a bond or other reasonable security acceptable to
Landlord assuring that any work commenced by Tenant will be completed in
accordance with the specifications set forth in Exhibit C or otherwise approved
in writing by Landlord, whichever may be applicable, and that no liens for labor
or materials will attach to the Premises with respect to any such work; to pay
promptly when due the entire cost of any work on the Premises undertaken by
Tenant so that the Premises shall at all times be free of liens for labor and
materials; to employ for such work one or more responsible contractors whose
labor will work without interference with other labor working on the Premises;
to require such contractors employed by Tenant to carry workmen's compensation
insurance in accordance with statutory requirements and comprehensive public
liability insurance covering such contractors on or about the Premises in
amounts that at least equal the limits set forth in Section 1.1 and to submit
certificates evidencing such coverage to Landlord prior to the commencement of
such work; and to save Landlord harmless and indemnified from all injury, loss,
claims or damage to any person or property occasioned by or growing out of such
work.
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5.1.6 Indemnity. Tenant shall defend, with counsel approved by Landlord,
all actions, against Landlord, any partner, trustee, stockholder, officer,
director, employee, beneficiary or mortgagee of Landlord (herein, "Indemnified
Parties"), with respect to, and shall pay, protect, indemnify and save harmless,
to the extent permitted by law, all Indemnified Parties from and against, any
and all liabilities, losses, damages, costs, expenses (including reasonable
attorneys' fees and expenses), causes of action, suits, claims, demands or
judgments of any nature arising from (i) injury to or death of any person, or
damage to or loss of property, on or about the Premises or connected with the
use, condition or occupancy of any thereof except to the extent caused by the
gross negligence, negligence or intentional misconduct of Landlord, (ii)
violation by Tenant of this Lease, (iii) any act, fault, omission, or other
misconduct of Tenant or its agents, contractors, licensees, sublessees or
invitees, or (iv) any contest initiated by Tenant referred to in Section 5.1.4.
5.1.7 Landlord's Right to Enter. To permit Landlord and its agents to
enter the Premises at reasonable times to examine the Premises, to make such
repairs and replacements as Landlord is required to make hereunder or that
Landlord elects to make in the absence of any such requirement, and to show the
Premises to prospective purchasers and lenders, and, during the last six months
of the Term, to show the Premises to prospective Tenants and to keep affixed in
suitable places notices of availability of the Premises.
5.1.8 Personal Property at Tenant's Risk. All of the furnishings,
fixtures, equipment, effects and property of every kind, nature and description
of Tenant and of all persons claiming by, through or under Tenant which, during
the continuance of this Lease or any occupancy of the Premises by Tenant or
anyone claiming under Tenant, may be on the Premises, shall be at the sole risk
and hazard of Tenant and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, no part of
said loss or damage is to be charged to or to be borne by Landlord, except that
Landlord shall in no event be indemnified or held harmless or exonerated from
any liability to Tenant or to any other person for any injury, loss, damage or
liability to the extent prohibited by law or caused by Landlord's negligence,
gross negligence, or intentional misconduct.
5.1.9 Payment of Landlord's Cost of Curing Default. To pay on demand
Landlord's expenses, including reasonable attorneys' fees, incurred in curing
any default by Tenant under this Lease as provided in Section 7.4.
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5.1.10 Yield Up. At the expiration of the Term or earlier termination of
this Lease: to surrender all keys to the Premises, to remove all furnishings,
fixtures, equipment and other personal property now or hereafter located in the
Premises, purchased or leased by Tenant with its own funds, which are not
affixed to the Building or Land or which Landlord has agreed in writing that
Tenant may remove at the expiration of the Term, to remove such installations
made by Tenant as Landlord may request and all Tenant's signs wherever located,
to repair all damage caused by such removal and to yield up the Premises
(including all installations and improvements made by Tenant, except for trade
fixtures, and such of said installations or improvements as Landlord shall
request Tenant to remove), broom-clean and in the same good order and repair in
which Tenant is obliged to keep and maintain the Premises by the provisions of
this Lease. Any property not so removed shall be deemed abandoned and may be
retained by Landlord or may be removed and disposed of by Landlord in such
manner as Landlord shall determine and Tenant shall pay Landlord the entire cost
and expense incurred by Landlord in effecting such removal and disposition and
in making any incidental repairs and replacements to the Premises less the net
value, if any, realized by Landlord by the sale of any such abandoned Property.
For each day after the expiration of the Term, or the earlier termination of
this Lease, and prior to Tenant's performance of its obligation to yield up the
Premises under this Section 5.1.10, Tenant shall pay to Landlord as rent an
amount equal to twice the Fixed Rent computed on a daily basis, together with
all Additional Rent payable with respect to each such day. Tenant shall further
indemnify Landlord against all loss, cost and damage resulting from Tenant's
delay in surrendering the Premises as above provided.
5.1.11 Estoppel Certificate. Upon not less than 15 days' prior notice by
Landlord, to execute, acknowledge and deliver to Landlord a statement in
writing, addressed to such party as Landlord shall designate in its notice to
Tenant, certifying that this Lease is unmodified and in full force and effect
and that Tenant has no defenses, offsets or counterclaims against its
obligations to pay the Fixed Rent and Additional Rent and any other charges and
to perform its other covenants under this Lease (or, if there have been any
modifications that the same is in full force and effect as modified and stating
the modifications and, if there are any defenses, offsets or counterclaims,
setting them forth in reasonable detail), the dates to which the Fixed Rent and
Additional Rent and other charges have been paid and a statement that, to the
best of Tenant's knowledge, Landlord is not in default hereunder (or if in
default, the nature of such default, in reasonable detail). Any such statement
delivered pursuant to this Section 5.1.11 may be relied upon by any prospective
purchaser or mortgagee of the Premises, or any prospective assignee of any such
mortgagee.
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5.1.12 Landlord's Expenses Re Consents. To reimburse Landlord promptly on
demand for all reasonable legal expenses incurred by Landlord in connection with
all requests by Tenant for consent or approval hereunder; and Landlord agrees to
reimburse Tenant promptly on demand for all reasonable legal expenses incurred
by Tenant in connection with all requests by Landlord for consent or approval
hereunder.
5.1.13 Financial Statements. Tenant shall furnish to Landlord and to any
holder of a mortgage on the Premises as Landlord may designate by notice to
Tenant, within 120 days after each full or partial fiscal year of operation on
the Premises, a current balance sheet and an annual operating statement, in form
and detail satisfactory to Landlord and to any such holder of a mortgage,
prepared by a certified public accountant acceptable to Landlord and to any such
holder of a mortgage. Landlord shall not provide such statements to any party
other than Landlord's counsel, mortgagees or prospective mortgagees, and other
parties on a need to know basis.
5.1.14 Insurance. To carry the following insurance at all times during the
Term of this Lease:
Commercial general liability insurance, including contractual liability
and Host Liquor liability insurance indemnifying Landlord and Tenant against all
claims and demands for any injury to person or property which may be claimed to
have occurred on or about the Premises or connected with the use, condition or
occupancy of any thereof, with combined single limit coverage at least equal to
the limits set forth in Section 1.1, or such higher limits as Landlord may
reasonably require; and
workers' compensation insurance with statutory limits covering all of
Tenant's employees working on the Premises.
During the Term if any construction, renovation, Building improvements or
alterations are performed on the Premises by or on behalf of Tenant then Tenant
shall provide, prior to the commencement of any such activity, "all physical
loss" builder's risk insurance based on a completed value form, on all work
being performed on the Premises, in such amounts as Landlord may reasonably
require to afford one hundred percent (100%) coverage against loss, and owner's
contingent or protective liability insurance, covering claims not covered by or
under the terms of the above-mentioned commercial general liability insurance,
with combined single limit coverage at least equal to the limits set forth in
Section 1.1, or such higher limits as Landlord may reasonably require;
and workers' compensation insurance covering all persons working on the
job site or in connection with such construction.
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All policies required under this Section shall be obtained from responsible
companies qualified to do business in the state in which the Premises are
located and in good standing therein, which companies and the amount of
insurance allocated thereto shall be subject to Landlord's approval. Tenant
agrees to furnish Landlord certificates of insurance (and copies of policies if
required by any of Landlord's mortgagees) for all such insurance prior to the
beginning of the Term hereof and of each renewal policy at least 30 days prior
to the expiration of the policy it renews. Each such policy shall be non-
cancelable with respect to the interest of Landlord and the holders of any
mortgages on the Premises without at least 30 days' prior written notice
thereto, except that required notice period shall be 20 days with respect to
workers' compensation insurance. In the event provision for any such insurance
is to be by a blanket insurance policy, the policy shall allocate a specific
amount of coverage to the Premises, which allocation shall be sufficient in
amount to satisfy the requirements of this Section.
All insurance which is carried by either party with respect to the Premises
or to furniture, furnishings, fixtures or equipment therein or alterations or
improvements thereto, whether or not required, shall include provisions which
either designate the other party as one of the insured or deny to the insurer
acquisition by subrogation of rights of recovery against the other party to the
extent such rights have been waived by the insured party prior to occurrence of
loss or injury, insofar as, and to the extent that such provisions may be
effective without making it impossible to obtain insurance coverage from
responsible companies qualified to do business in the state in which the
Premises are located (even though extra premium may result therefrom). In the
event that extra premium is payable by either party as a result of this
provision, the other party shall imburse the party paying such premium the
amount of such extra premium. If at the request of one party, this
nonsubrogation provision is waived as to such party, then the obligation of
reimbursement by such party shall cease for such period of time as such waiver
shall be affective, but nothing contained in this Section shall derogate from or
otherwise affect releases elsewhere herein contained of either party for claims.
Each party shall be entitled to have duplicates or certificates of any policies
containing such provisions. Each party hereby waives all rights of recovery
against the other for loss or injury against which the waiving party is
protected by insurance containing said nonsubrogation provisions, reserving,
however, any rights with respect to any excess of loss or injury over the amount
recovered by such insurance. Tenant shall not acquire as insured under any
insurance carried on the Premises any right to participate in the adjustment of
loss or to receive insurance proceeds and agrees upon request promptly to
endorse and deliver to Landlord any checks or other instruments in payment of
loss in which Tenant is named as payee.
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5.2 Negative Covenants. Tenant covenants at all times during the Term and
for such further time as Tenant occupies the Premises or any part thereof:
5.2.1 Assignment and Subletting. Not to assign, transfer, mortgage or
pledge this Lease or to grant a security interest in Tenant's rights hereunder,
or to sublease (which term shall be deemed to include the granting of
concessions and licenses and the like) or permit anyone other than Tenant to
occupy all or any part of the Premises or suffer or permit this Lease or the
leasehold interest hereby created or any other rights arising under this Lease
to be assigned, transferred or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law, unless, in each instance (i)
the prior written consent of Landlord thereto shall have been obtained, (ii) any
defaults then existing with respect to the obligations of Tenant under this
Lease shall have been cured, and (iii) in the case of a proposed assignment,
sublease or occupancy by another, the proposed assignee, sublessee, or occupant
is qualified to do business in the state in which the Premises are located and
such assignee, sublessee, or occupant executes and delivers to Landlord an
agreement satisfactory to Landlord by which such assignee, sublessee or occupant
shall be bound by and shall assume all the obligations of this Lease relating to
the portion or all of the Premises acquired by such assignee, sublessee or
occupant. Tenant may assign this Lease or sublet any portion or all of the
Premises to any corporation, partnership, trust, association or other business
or organization (x) directly or indirectly controlling and beneficially owning
Tenant, (y) directly or indirectly controlled by and beneficially owned by
Tenant, or to any successor of Tenant by merger, consolidation or acquisition of
substantially all of the assets of Tenant, without the prior written consent of
Landlord as required in (i) above, provided that (a) Tenant shall deliver to
Landlord at least 30 day's advance notice of such proposed assignment or
sublease, (b) in the case of a merger, consolidation or sale, the net worth of
Tenant's successor (determined in accordance with generally accepted accounting
principles) immediately after such merger, consolidation or sale shall be at
least equal to the net worth of Tenant (similarly determined) immediately prior
to such merger, consolidation or sale. If for any assignment or sublease or
occupancy by another, Tenant receives rent or other consideration, either
initially or over the term of the assignment, sublease or occupancy, in excess
of the rent called for hereunder, or in case of sublease of part of the
Premises, in excess of such rent fairly allocable to the part so subleased,
after appropriate adjustments to assure that all other payments called for
hereunder are appropriately taken into account, Tenant shall pay to Landlord, as
Additional Rent, 50% of the excess of each such payment of rent or other
consideration received by Tenant promptly after its receipt. In the event of a
proposed subletting, Tenant's request for Landlord's consent shall
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constitute an offer to Landlord to release from this Lease that portion of the
Premises proposed to be sublet, which offer Landlord may accept within 30 days
after receipt. If Landlord accepts such offer, this Lease shall be deemed to
have been amended by deleting such portion from the Premises and by reducing the
Fixed Rent by an amount equal to the product of the Fixed Rent multiplied times
a fraction, the numerator of which shall be equal to the net rentable floor area
of such portion deleted from the Premises and the denominator of which shall be
equal to the net rentable floor area of the Premises including the deleted
portion. Thereafter, for all purposes of this Lease the Premises shall mean the
balance of the premises demised hereunder following deletion of the affected
portion thereof, and all Additional Rent payable hereunder shall be adjusted
pro-rata, accordingly. Such amendment shall be effective on the proposed
effective date of the sublease as specified in Tenant's request for consent.
Tenant shall be responsible for all changes in leasehold improvements, including
doors and demising walls, required by such amendment, which changes shall be
constructed in accordance with the relevant provisions of Section 3.2, Section
5.1.5 and Section 5.2.3, and Tenant shall at all times provide reasonable and
appropriate access through the balance of the Premises demised hereunder to such
deleted portion of the Premises and use of any common facilities lying within
the said balance of the Premises. Landlord's failure to accept Tenant's offer to
release shall not constitute a consent to the proposed subletting. In the event
of a proposed assignment of this Lease, Tenant's request for Landlord's consent
shall constitute an offer to Landlord to terminate this Lease, which offer
Landlord may accept within 30 days after receipt. Landlord's failure to accept
Tenant's offer to terminate shall not constitute a consent to the proposed
assignment. For the purposes of this Section 5.2.1, the transfer in the
aggregate in any one year of 50% or more in interest in Tenant (whether stock,
partnership interest or other form of ownership or control) by any person or
persons having an interest in ownership or control of Tenant shall be deemed an
assignment of this Lease. The preceding sentence shall not apply to an initial
public offering of the stock of the initial Tenant, nor to the trading of the
outstanding stock of the initial Tenant thereafter so long as such Tenant has a
class of stock registered under the Securities Exchange Act of 1934.
Any attempted assignment, transfer, mortgage, pledge, grant of security
interest, sublease or other encumbrance, except as permitted by this Section
5.2.1, shall be void. No assignment, transfer, mortgage, grant of security
interest, sublease or other encumbrance, whether or not approved, and no
indulgence granted by Landlord to any assignee, sublessee or occupant shall in
any way impair Tenant's continuing primary liability (which, except for a
complete assignment of Tenant's interest releasing Tenant from further liability
hereunder and consented to by Landlord pursuant to Section 5.2.1, shall be joint
and several with the
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assignee or sublessee) of Tenant hereunder, and no approval in a particular
instance shall be deemed to be a waiver of the obligation to obtain Landlord's
approval in any other case.
5.2.2 Overloading and Nuisance. Not to injure, overload, deface or
otherwise harm the Premises; nor commit any nuisance; nor permit the emission of
any objectionable noise or odor; nor make, allow or suffer any waste; not to
dump, flush, or in any way introduce any hazardous substances or any other toxic
substances into the septic, sewage or other waste disposal system serving the
Premises; not to generate, store, use or dispose of hazardous or toxic
substances in or on the Premises, or dispose of hazardous or toxic substances
from the Premises to any other location, or commit or suffer to be committed in
or on the Premises any act which would require the filing of notice pursuant to
Chapter 232 of the Acts of 1982, without the prior written consent of Landlord
and then only in compliance with any and all Federal, state and local laws and
ordinances regulating such activity; nor make any use of the Premises which is
improper, offensive or contrary to any law or ordinance or which will invalidate
any of Landlord's insurance; nor conduct any auction, fire, "going out of
business" or bankruptcy sales. "Hazardous substances" and "toxic substances",
as used in this paragraph, shall have the same meanings as defined and used in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. 9061 et seq.; in the Hazardous Materials
Transportation Act, 49 U.S.C. 1802; in the Toxic Substances Act, 15 U.S.C.
2601 et seq.; and in the regulations adopted and publications promulgated
pursuant to said Acts.
5.2.3 Installation, Alterations or Additions. Except for the work
specified in Exhibit C, not to make any installations, alterations or additions
in, to or on the Premises (including, without limitation, buildings, lawns,
planted areas, walks, roadways, parking and loading areas) nor to permit the
making of any holes in the walls, partitions, ceilings or floors, nor permit the
painting or placing of any exterior signs, placards or other advertising media,
awning, aerials, antennas, or flagpoles, or the like, without on each occasion
obtaining the prior written consent of Landlord, and then only pursuant to plans
and specifications approved by Landlord in advance in each instance.
ARTICLE VI: Casualty or Taking
-------------------------------
6.1 Termination Rights. In case prior to or during the Term more than 50%
of the Premises or the Building or the lot on which the Building is located (the
"Lot") are damaged by fire or other casualty or by action of public or other
authority in consequence thereof, or taken by eminent domain or Landlord
receives compensable damage by reason of anything lawfully done in pursuance of
public or other authority, and Landlord
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determines in its sole discretion that the Premises or Building shall not be
restored, this Lease shall terminate by written notice to Tenant from Landlord
given not more than forty-five (45) days after such casualty or taking, which
termination may be made notwithstanding Landlord's entire interest may have been
divested. The effective date of termination specified by Landlord shall not be
less than thirty (30) nor more than sixty (60) days after the date of written
notice of such termination. Further, during the Term, in the event of (a) damage
to the Premises which makes fifty (50%) percent or more of the Premises unfit
for use and occupancy, or damage to the Tenant's computer room located in the
Premises that renders such computer room inoperable, or (b) damage to a material
portion of the common facilities necessary for the practical use and enjoyment
of the Premises (including, without limitation, any material portion of the
common facilities which provide access to the Premises), or (c) a permanent
taking of fifty (50%) percent or more of the Premises or a taking of any portion
of the Tenant's computer room that renders such computer room inoperable, or (d)
a permanent taking of a material portion of the common facilities necessary for
the practical use and enjoyment of the Premises (including, without limitation,
any material portion of the common facilities which provide access to the
Premises), Tenant may, by notice given to Landlord within 30 days of such
casualty or taking, notify Landlord of its desire to terminate this Lease. If
such a notice is given, this Lease shall terminate 30 days after such notice is
given unless, in the case of (a) or (b) above, within 30 days of the giving of
such notice, Landlord delivers to Tenant its certification (together with a
construction schedule demonstrating that the damaged portion of the Premises
will be restored by the Outside Restoration Date) that the Landlord intends to
restore the Premises and the common facilities, as the case may be, to
substantially the condition they were in prior to such casualty or taking within
180 days of the event giving rise to such notice (the "Outside Restoration
Date"), and in the case of (c) or (d) above, the Landlord intends to replace
what remains of the Premises and the common facilities, as the case may be, by
the Outside Restoration Date so that Tenant will again be able to have the
practical use and enjoyment of the Premises to substantially the same extent as
prior to such taking. Notwithstanding the foregoing, with respect to any
casualty occurring in Tenant's computer room, the Outside Restoration Date for
restoration work undertaken in such computer room shall be the date sixty (60)
days after the casualty or taking. Unless terminated pursuant to the foregoing
provision, this Lease shall remain in full force and effect following any damage
or taking, subject, however, to the following provisions, and subject further to
the additional right of Tenant to terminate this Lease if the restoration of the
Premises or the common facilities has not occurred by the Outside Restoration
Date (such date being extended by the number of days, not to exceed fifteen (15)
days in the aggregate with respect to restoration work being done in
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Tenant's computer room, and sixty (60) days in the aggregate otherwise, as
specified in a notice or notices given from time to time by Landlord to Tenant
prior to the then applicable Outside Restoration Date, of delays in completion
attributable to the occurrence of a force majeure event as provided in Section
9.5). Tenant may not exercise such additional right to terminate this Lease
except within 30 days after the Outside Restoration Date (as so extended by such
a notice or notices). Notwithstanding the foregoing, upon the occurrence of a
casualty or taking of the nature hereinabove described in clauses (a), (b), (c),
or (d), which occurs within the last twelve (12) months of the Term, Landlord
shall have the option to terminate this Lease upon written notice to Tenant.
If in any such case the Premises or any portion thereof are rendered unfit
for use and occupation or any portion of the common facilities necessary for the
practical use and enjoyment of the Premises are unavailable for use and this
Lease is not so terminated, Landlord shall use due diligence (following the
expiration of the period in which this Lease may be terminated pursuant to the
foregoing provisions of this Section 6.1), subject to the availability of
insurance proceeds and consent of the holders of any mortgages on the Lot,
Building or both, to put the Premises, and any portion of the common facilities
necessary for the practical use and enjoyment of the Premises or in case of a
taking what may remain thereof (excluding in case of both damage and taking any
items installed or paid for by Tenant), into proper condition for use and
occupation prior to the Outside Restoration Date. A just proportion of the
fixed rent and additional rent according to the nature and extent of the injury
shall be abated from the time of the damage or taking until the Premises or such
portion of the common facilities or such remainder shall have been put into
proper condition for use and occupation or until termination of this Lease, and
in case of a taking which permanently reduces the area of the Premises, a just
proportion of the fixed rent and additional rent shall be abated for the
remainder of the Term.
6.2 Award. Irrespective of the form in which recovery may be had by law,
all rights to damages or compensation shall belong to Landlord in all cases.
Tenant hereby grants to Landlord all of Tenant's rights to such damages and
covenants to deliver such further assignments thereof as Landlord may from time
to time request.
ARTICLE VII: Defaults
----------------------
7.1 Events of Default. (a) If Tenant shall default in the performance of
any of its obligations to pay the Fixed Rent or Additional Rent hereunder and if
such default shall continue for 10 days after notice from Landlord designating
such default or if within 30 days after notice from Landlord to Tenant
specifying any other default or defaults Tenant has not commenced diligently to
correct the default or defaults so specified or has not thereafter diligently
pursued such correction to completion, or (b) if Tenant or any present or future
guarantor of all or any portion of Tenant's obligations under this Lease (a
"Guarantor") becomes insolvent or fails to pay its debts as they fall due, or
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(c) if a trust mortgage or assignment is made by Tenant or by any Guarantor for
the benefit of creditors, or (d) if Tenant or any Guarantor proposes a
composition, arrangement, reorganization or recapitalization with creditors, or
(e) if the leasehold estate under this Lease or any substantial part of the
property of Tenant or of any Guarantor is taken on execution, or by other
process of law, or is attached or subjected to any other involuntary
encumbrance, or (f) if a receiver, trustee, custodian, guardian, liquidator or
similar agent is appointed with respect to Tenant or any Guarantor, or if any
such person or a mortgagee, secured party or other creditor takes possession of
the Premises or of any substantial part of the property of Tenant or of any
Guarantor, and, in either case, if such appointment or taking of possession is
not terminated within 30 days after it first occurs, or (g) if a petition is
filed by or with the consent of Tenant or of any Guarantor under any federal or
state law concerning bankruptcy, insolvency, reorganization, arrangement, or
relief from creditors, or (h) if a petition is filed against Tenant or against
any Guarantor under any federal or state law concerning bankruptcy, insolvency,
reorganization, arrangement, or relief from creditors, and such petition is not
dismissed within 60 days thereafter, or (i) if Tenant or any Guarantor which is
a corporation dissolves or is dissolved or liquidates or adopts any plan or
commences any proceeding, the result of which is intended to include dissolution
or liquidation, then, and in any of such cases, Landlord and the agents and
servants of Landlord lawfully may, in addition to and not in derogation of any
remedies for any preceding breach of covenant, immediately or at any time
thereafter and without demand or notice and with or without process of law
(except such demand, notice, or legal process, if any, as required by applicable
law) enter into and upon the Premises or any part thereof (forcibly, if
necessary) in the name of the whole or mail a notice of termination addressed to
Tenant, and repossess the same as of Landlord's former estate and expel Tenant
and those claiming through or under Tenant and remove its and their effects
(forcibly, if necessary) without being deemed guilty of any manner of trespass
and without prejudice to any remedies which might otherwise be used for arrears
of rent or prior breach of covenant, and upon such entry or mailing as aforesaid
this Lease shall terminate, Tenant hereby waiving all statutory rights
(including without limitation rights of redemption, if any, to the extent such
rights may be lawfully waived) and Landlord, without notice to Tenant, may store
Tenant's effects, and those of any person claiming through or under Tenant at
the expense and risk of Tenant, and, if Landlord so elects, may sell such
effects at public auction or private sale and apply the net proceeds to the
payment of all sums due to Landlord from Tenant, if any, and pay over the
balance, if any, to Tenant.
7.2 Remedies. In the event that this Lease is terminated under any of the
provisions contained in Section 7.1 or shall be all be otherwise terminated for
breach of any obligation of Tenant, Tenant covenants to pay forthwith to
Landlord, as compensation, the greater of: (a) the excess of the total rent
reserved for the residue of the Term over the rental value of the
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<PAGE>
Premises for said residue of the Term (in calculating the rent reserved there
shall be included, in addition to the Fixed Rent and Additional Rent, the value
of all other considerations agreed to be paid or performed by Tenant for said
residue); or (b) all the sums and to perform all the obligations which Tenant
covenants in this Lease to pay and to perform in the same manner and to the same
extent and at the same time as if this Lease had not been terminated. In
calculating the amounts to be paid by Tenant pursuant to the next preceding
sentence Tenant shall be credited with the portion of any amount paid to
Landlord as compensation as in this Section 7.2 provided, allocable to the
corresponding portion of the Term and also with the net proceeds of any rent
obtained by Landlord by reletting the Premises, after deducting all Landlord's
reasonable expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for such reletting, it being
agreed by Tenant that Landlord may, but shall not be obligated to, (i) relet the
Premises or any part or parts thereof, for a term or terms which may at
Landlord's option be equal to or less than or exceed the period which would
otherwise have constituted the balance of the Term and may grant such
concessions and free rent as Landlord in its reasonable judgment considers
advisable or necessary to relet the same, (ii) make such alterations, repairs
and decorations in the Premises as Landlord in its reasonable judgment considers
advisable or necessary to relet the same, and (iii) keep the Premises vacant
unless and until Landlord is able to rent the Premises to a Tenant which is at
least as desirable and financially responsible as Tenant is on the date of this
Lease, on terms not less favorable to Landlord than those of this Lease. No
action of Landlord in accordance with the foregoing or failure to relet or to
collect rent under reletting shall operate or be construed to release or reduce
Tenant's liability as aforesaid. Nothing contained in this Lease shall limit or
prejudice the right of Landlord to prove for and obtain in proceedings under any
federal or state law relating to bankruptcy or insolvency or reorganization or
arrangement, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, the
damages are to be proved.
7.3 Remedies Cumulative. Any and all rights and remedies which Landlord
may have under this Lease, and at law and equity, shall be cumulative and shall
not be deemed inconsistent with each other, and any two or more of all such
rights and remedies may be exercised at the same time insofar as permitted by
law.
7.4 Landlord's Right to Cure Defaults. Landlord may, but shall not be
obligated to, cure, at any time, following 10 days' prior notice to Tenant,
except in cases of emergency when no notice shall be required, any default by
Tenant under this Lease; and whenever Landlord so elects, all costs and expenses
incurred
20
<PAGE>
by Landlord, including reasonable attorneys' fees, in curing a default shall be
paid by Tenant to Landlord as Additional Rent on demand, together with interest
thereon at the rate provided in Section 4.3 from the date of payment by Landlord
to the date of payment by Tenant.
7.5 Effect of Waivers of Default. Any consent or permission by Landlord
to any act or omission which otherwise would be a breach of any covenant or
condition herein, or any waiver by Landlord of the breach of any covenant or
condition herein, shall not in any way be held or construed (unless expressly so
declared) to operate so as to impair the continuing obligation of any covenant
or condition herein, or otherwise, except as to the specific instance, operate
to permit similar acts or omissions. The failure of Landlord to seek redress
for violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease shall not be deemed a waiver of such violation nor
prevent a subsequent act, which would have originally constituted a violation,
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this Lease
shall not be deemed to have been a waiver of such breach by Landlord, or by
Tenant, unless such waiver be in writing signed by the party to be charged. No
consent or waiver, express or implied, by Landlord to or of any breach of any
agreement or duty shall be construed as a waiver or consent to or of any other
breach of the same or any other agreement or duty.
7.6 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum
than the Fixed Rent, Additional Rent or any other charge then due shall be
deemed to be other than on account of the earliest installment of such rent or
charge due, unless Landlord elects by notice to Tenant to credit such sum
against the most recent installment due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent or other
charge be deemed a waiver, an agreement or an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such installment or pursue any other remedy in this
Lease provided.
ARTICLE VIII: Mortgages
------------------------
8.1 Rights of Mortgage Holders. The word "mortgage" as used herein
includes mortgages, deeds of trust or other similar instruments evidencing other
voluntary liens or encumbrances, and modifications, consolidations, extensions,
renewals, replacements and substitutes thereof. The word "holder" shall mean a
mortgagee, and any subsequent holder or holders of a mortgage. Until the holder
of a mortgage shall enter and take possession of the Premises for the purpose of
foreclosure, such holder shall have only such rights of Landlord as are
necessary to preserve
21
<PAGE>
the integrity of this Lease as security. Upon entry and taking possession of the
Premises for the purpose of foreclosure, such holder shall have all the rights
of Landlord. Notwithstanding any other provision of this Lease to the contrary,
including without limitation Section 9.4, no such holder of a mortgage shall be
liable either as mortgagee or as assignee, to perform, or be liable in damages
for failure to perform, any of the obligations of Landlord unless and until such
holder shall enter and take possession of the Premises for the purpose of
foreclosure, and such holder shall not in any event be liable to perform or for
failure to perform the obligations of Landlord under Section 3.1. Upon entry for
the purpose of foreclosure, such holder shall be liable to perform all of the
obligations of Landlord under this Lease accruing from and after such entry
(except for the obligations under Sections 3.1 and 3.5 which such holder shall
in no event be obligated to perform), subject to and with the benefit of the
provisions of Section 9.4, provided that a discontinuance of any foreclosure
proceeding shall be deemed a conveyance under said provisions to the owner of
the Premises. No Fixed Rent, Additional Rent or any other charge shall be paid
more than 10 days prior to the due dates thereof and payments made in violation
of this provision shall (except to the extent that such payments are actually
received by a mortgagee in possession or in the process of foreclosing its
mortgage) be a nullity as against such mortgagee and Tenant shall be liable for
the amount of such payments to such mortgagee. The covenants and agreements
contained in this Lease with respect to the rights, powers and benefits of a
holder of a mortgage (including, without limitation, the covenants and
agreements contained in this Section 8.1) constitute a continuing offer to any
person, corporation or other entity, which by accepting a mortgage subject to
this Lease, assumes the obligations herein set forth with respect to such
holder; such holder is hereby constituted a party of this Lease as an obligee
hereunder to the same extent as though its name were written hereon as such; and
such holder shall be entitled to enforce such provisions in its own name. Tenant
agrees on request of Landlord to execute and deliver from time to time any
agreement which may be necessary to implement the provisions of this Section
8.1.
8.2 Lease Superior or Subordinate to Mortgages. This Lease is and shall
continue to be subject and subordinate to any presently existing mortgage or
mortgages secured by the Premises, and to any and all advances hereafter made
thereunder, and to the interest of the holder or holders thereof in the
Premises. The holder of any such presently existing mortgage shall have the
election to subordinate the same to this Lease, exercisable by filing with the
appropriate recording office a notice of such election, whereupon this Lease
shall have priority over such mortgage. A copy of such filing shall be given to
Tenant. Such election by the holder of any presently existing mortgage shall
not affect priority with respect to this Lease of
22
<PAGE>
any other presently existing mortgage. Any mortgage or other voluntary lien or
other encumbrance recorded subsequent to the recording of the notice or short
form referred to in Section 9.3 shall be subject and subordinate to this Lease
unless Landlord and the holder of any such subsequent mortgage and the holders
of all mortgages prior to such subsequent mortgage elect to subordinate this
Lease to such subsequent mortgage and to any and all advances thereafter made
thereunder and to the interest of the holder thereof in the Premises, such
election to be exercisable by Landlord and all such holders by filing with the
appropriate recording office (a) a notice of such election and (b) an agreement
between the holder of such subsequent mortgage and Tenant, consented to by
holders of all mortgages having priority over such subsequent mortgage, by the
terms of which such holder will agree to recognize the rights of Tenant under
this Lease and to accept Tenant as tenant of the Premises under the terms and
conditions of this Lease in the event of acquisition of title by such holder
through foreclosure proceedings or otherwise and Tenant will agree to recognize
the holder of such subsequent mortgage as Landlord in such event, which
agreement shall be made expressly to bind and inure to the benefit of the
successors and assigns of Tenant and of such holder and upon anyone purchasing
said Premises at any foreclosure sale brought by such holder. Tenant and
Landlord agree to execute and deliver any appropriate instruments necessary to
carry out the agreements contained in this Section 8.2. Any such subsequent
mortgage to which this Lease is subordinated may contain such terms, provisions
and conditions as are usual or customary.
ARTICLE IX: Miscellaneous Provisions
-------------------------------------
9.1 Notices from One Party to the Other. All notices required or
permitted hereunder shall be in writing and addressed, if to the Tenant, at the
Original Address of Tenant or such other address as Tenant shall have last
designated by notice in writing to Landlord and, if to Landlord, at the Original
Address of Landlord or such other address as Landlord shall have last designated
by notice in writing to Tenant. Any notice shall be deemed duly given when
mailed to such address postage prepaid, registered or certified mail, return
receipt requested, or when delivered to such address by hand.
9.2 Quiet Enjoyment. Landlord agrees that upon Tenant's paying the rent
and performing and observing the terms, covenants, conditions and provisions on
its part to be performed and observed, Tenant shall and may peaceably and
quietly have, hold and enjoy the Premises during the Term without any manner of
hindrance or molestation from Landlord or anyone claiming under Landlord,
subject, however, to the terms of this Lease.
9.3 Lease not to be Recorded. Tenant agrees that it will
23
<PAGE>
not record this Lease. Both parties shall, upon the request of either, execute
and deliver a notice or short form of this Lease in such form, if any, as may be
permitted by applicable statute. If this Lease is terminated before the Term
expires the parties shall execute, deliver and record an instrument
acknowledging such fact and the actual date of termination of this Lease, and
Tenant hereby appoints Landlord its attorney-in-fact, coupled with an interest,
with full power of substitution to execute such instrument.
9.4 Bind and Inure; Limitation of Landlord's Liability. The obligations
of this Lease shall run with the land, and this Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. No owner of the Premises shall be liable under this Lease except for
breaches of Landlord's obligations occurring while owner of the Premises. The
obligations of Landlord shall be binding upon the assets of Landlord which
comprise the Premises but not upon other assets of Landlord. No individual
partner, trustee, stockholder, officer, director, employee or beneficiary of
Landlord shall be personally liable under this Lease and Tenant shall look
solely to Landlord's interest in the Premises in pursuit of its remedies upon an
event of default hereunder, and the general assets of Landlord and of the
individual partners, trustees, stockholders, officers, employees or
beneficiaries of Landlord shall not be subject to levy, execution or other
enforcement procedure for the satisfaction of the remedies of Tenant. The next
preceding sentence shall not limit the right of Tenant to name Landlord or any
individual partner or trustee thereof as party defendant in any action or suit
in connection with this Lease so long as no personal money judgment shall be
asked for or taken against any individual partner, trustee, stockholder,
officer, employee or beneficiary of Landlord.
9.5 Acts of God. In any case where either party hereto is required to do
any act, delays caused by or resulting from Acts of God, war, civil commotion,
fire, flood or other casualty, labor difficulties, shortages of labor, materials
or equipment, government regulations, unusually severe weather, or other causes
beyond such party's reasonable control shall not be counted in determining the
time during which work shall be completed, whether such time be designated by a
fixed date, a fixed time or a "reasonable time", and such time shall be deemed
to be extended by the period of such delay.
9.6 Landlord's Default. Landlord shall not be deemed to be in default in
the performance of any of its obligations hereunder unless it shall fail to
perform such obligations and such failure shall continue for a period of 30 days
following Landlord's receipt of notice from Tenant specifying the nature of
Landlord's alleged default, or such additional time, not to exceed 120 days, as
is reasonably required to correct any such default that cannot
24
<PAGE>
be cured within 30 days, provided Landlord commences such cure within 30 days
and thereafter diligently pursues the same until completion. In the event
Landlord fails to cure a material default alleged in Tenant's notice of default,
Tenant shall be entitled to terminate this lease upon 10 days written notice to
Landlord if such default is not cured within such 10 days, but Tenant shall have
no other right to terminate this Lease and no right, for any default, to offset
or counterclaim against any rent due hereunder. Landlord shall not be liable in
any event for incidental or consequential damages to Tenant by reason of any
default by Landlord hereunder, whether or not Landlord is notified that such
damages may occur.
9.7 Brokerage. Tenant warrants and represents that it has had no dealings
with any broker or agent in connection with this Lease and covenants to defend
with counsel approved by Landlord, hold harmless and indemnify Landlord from and
against any and all cost, expense or liability for any compensation, commissions
and charges claimed by any broker or agent with respect to Tenant's dealings in
connection with this Lease or the negotiation thereof.
Landlord warrants and represents that it has had no dealings with any
broker or agent in connection with this Lease and covenants to defend with
counsel approved by Tenant, hold harmless and indemnify Tenant from and against
any and all cost, expense or liability for any compensation, commissions and
charges claimed by any broker or agent with respect to Landlord's dealings in
connection with this Lease or the negotiation thereof.
9.8 Applicable Law and Construction.
9.8.1 Applicable Law. This Lease shall be governed by and construed in
accordance with the laws of the state in which the Premises are located. If any
term, covenant, condition or provision of this Lease or the application thereof
to any person or circumstances shall be declared invalid, or unenforceable by
the final ruling of a court of competent jurisdiction having final review, the
remaining terms, covenants, conditions and provisions of this Lease and their
application to persons or circumstances shall not be affected thereby and shall
continue to be enforced and recognized as valid agreements of the parties, and
in the place of such invalid or unenforceable provision, there shall be
substituted a like, but valid and enforceable provision which comports to the
findings of the aforesaid court and most nearly accomplishes the original
intention of the parties.
9.8.2 No Other Agreement. There are no oral or written agreements between
Landlord and Tenant affecting this Lease. This Lease may be amended, and the
provisions thereof may be
25
<PAGE>
waived or modified, only by instruments in writing executed by Landlord and
Tenant.
9.8.3 No Representations by Landlord. Neither Landlord nor any agent of
Landlord has made any representations or promises with respect to the Premises
or the Building except as herein expressly set forth, and no rights, privileges,
easements or licenses are granted to Tenant except as herein expressly set
forth.
9.8.4 Titles. The titles of the several Articles and Sections contained
herein are for convenience only and shall not be considered in construing this
Lease.
9.8.5 "Landlord" and "Tenant". Unless repugnant to the context, the words
"Landlord" and "Tenant" appearing in this Lease shall be construed to mean those
named above and their respective heirs, executors, administrators, successors
and assigns, and those claiming through or under them respectively. If there be
more than one tenant the obligations imposed by this Lease upon Tenant shall be
joint and several.
9.9 Submission Not an Offer. The submission of a draft of this Lease or a
summary of some or all of its provisions does not constitute an offer to lease
or demise the Premises, it being understood and agreed that neither Landlord nor
Tenant shall be legally bound with respect to the leasing of the Premises unless
and until this Lease has been executed by both Landlord and Tenant and a fully
executed copy delivered.
9.10 Signs. If permitted as of right under the applicable ordinances in
the Town of Billerica, Landlord shall install, at its expense, the following
signs for Tenant:
an exterior sign on the portion of the Building known as the connector
building; and
appropriate interior signs in such locations as to be reasonably approved
by Landlord and Tenant.
Plans for such signs shall be prepared by Landlord and approved by Tenant,
such approval not to be unreasonably withheld. In the event that construction
of any or all of the signs listed above is not permitted as of right, Landlord
shall so notify Tenant, and if Tenant still desires the construction of such
sign or signs, Landlord shall, at Tenant's expense, use reasonable efforts to
obtain the appropriate approvals for the same from the Town of Billerica. In no
event shall Landlord be required to appeal any unfavorable decision by Town of
Billerica authorities. Tenant shall reimburse Landlord for its expenses in
pursuing such approvals within 15 days of Landlord's invoice for the same.
26
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9.11 Costs and Expenses of Enforcement. In the event of any action taken
by Landlord or Tenant to enforce a provision of this Lease against the other,
the non-prevailing party shall pay the prevailing party, on demand, its costs,
including reasonable attorney's fees and expenses, incurred in such enforcement
action.
WITNESS the execution hereof under seal as of the day and year set forth
in Section 1.1.
Landlord: Tenant:
Wang Laboratories, Inc. Peritus Software Services, Inc.
By: /s/ Michael F. Farley By: /s/ Allen K. Deary
--------------------------- -----------------------------
Its: Its:
Hereunto duly authorized Hereunto duly authorized
(attach corporate vote)
27
<PAGE>
EXHIBIT A
The Premises are shown as the shaded areas on the attached plan.
[DIAGRAM OF PREMISES APPEARS HERE]
28
<PAGE>
EXHIBIT B
Landlord's Work
Connector portion of the Building
---------------------------------
Install refurbished Herman Miller partition cubicles, 5' high with 30" work
surface, including corner surfaces, 2 flipper files with lights under, 2
pedestal files, pencil drawer, keyboard drawer, cabled and powered per
specifications to be attached
Manufacturing portion of the Building
-------------------------------------
Install refurbished Herman Miller partition cubicles, 5' high with 30" work
surface, including corner surfaces, 2 flipper files with lights under, 2
pedestal files, pencil drawer, keyboard drawer, cabled and powered per
specifications to be attached
new carpet to match existing carpet in manufacturing building
paint walls and ceiling
build out office area in computer room with demountable walls, cabled and
powered per specifications to be attached
Except for the foregoing Landlord's Work, the Premises are leased to Tenant
in "AS IS" and "WHERE IS" condition, without representation or warranty of any
kind.
29
<PAGE>
EXHIBIT C
Tenant's Work
All work, other than Landlord's Work, required by Tenant for Tenant's use
and occupancy.
30
<PAGE>
EXHIBIT D
---------
SERVICES TO SE SUPPLIED BY LANDLORD
Landlord shall provide the following services, utilities, facilities and
supplies:
1. Access. Access to the Premises from the Building lobby during regular
------
Building hours 8:00 a.m. to 6:00 p.m. Monday through Friday (holidays
excluded), 8:00 am. to 1:00 p.m. Saturdays, and, at all other times,
controlled access under conditions which will ensure the security of
the Building;
2. Elevator. Daily elevator service during Building hours as specified
--------
above with other service as needed;
3. Heat and Air Conditioning. [Note: The following restrictions on HVAC
-------------------------
services shall not apply to the areas designated on Exhibit A as
-------
requiring 24-hour a day cooling.] Normal amounts of heat and air-
conditioning to the common areas of the Building and the Premises and
the Temporary Premises during normal seasonal heating and cooling
periods during regular Building hours 8:00 a.m. to 6:00 p.m. Monday
through Friday (holidays excluded) and 8:00 a.m. to 1:00 p.m.
Saturdays. Landlord shall furnish heat or air-conditioning beyond the
hours stated above provided that Tenant delivers notice to Landlord
requesting such service before noon on the business day when such
service is required for that evening and by noon of the preceding
business day when such service is required on a Saturday, Sunday or
holiday. Tenant and other tenants, if any, located in the applicable
heating or air-conditioning zone who have requested and are receiving
the benefit of such service at the same time as Tenant shall pay their
proportionate share of Landlord's Cost of supplying such additional
service. Within ten (10) days after receipt of a bill from Landlord
enumerating its costs for such services, Tenant shall pay Landlord all
amounts so billed;
4. Hot and Cold Water. Hot and cold water for lavatory, drinking and
------------------
office cleaning purposes. If Tenant requires, uses or consumes water
for any other purpose, Landlord may install a meter or meters or other
means to measure Tenant's water consumption and Tenant further agrees
to reimburse Landlord for the cost of the meter or meters and the
installation thereof, and to pay for the maintenance of the meter
equipment and/or to pay Landlord's cost of installing other means of
measuring
<PAGE>
such water consumption by Tenant. Within ten (10) days after receipt
of a bill from Landlord setting forth the cost of all water consumed
by Tenant (including sewer rents). Tenant shall pay Landlord the
amount so billed;
5. Snow Removal. The removal of snow and ice from the entry to and
------------
sidewalks of the Building;
6. Security. Lobby security desk with security guard, elevator lockoff
--------
capacity, intercom system and television monitoring System;
7. Cleaning. Building Standard cleaning services in the Premises,
--------
Temporary Premises and common areas of the Building, except Saturdays,
Sundays and holidays as follows:
OFFICE AREA
-----------
Daily - Monday through Friday inclusive, Legal Massachusetts
-----
Holidays excluded.
1. Empty all receptacles and remove trash to designated
area, wash receptacles as necessary.
2. Spot vacuum all rugs and carpets.
3. Hand dust and wipe clean with treated cloths all
horizontal surfaces including furniture, office
equipment, window sills, door ledges, chair rails and
convertor tops, within normal reach.
4. Wash clean all water fountains.
Weekly
------
1. Dust coat racks, and the like.
2. Remove all finger marks from private entrance doors,
light switches and doorways.
3. Vacuum all rugs and carpets.
4. Hand dust all grill work within normal reach.
5. Sweep and damp mop all uncarpeted areas using a dust-
treated mop.
Quarterly - Render high dusting not reached in daily cleaning to
---------
include;
1. Dusting all picture frames, charts, graphs, and similar
wall hangings.
D-2
<PAGE>
2. Dusting all vertical surfaces such as walls,
partitions, doors and ducts.
3. Dusting of all exposed pipes, ducts and high moldings.
4. Dusting of all venetian blinds.
LAVATORIES
----------
Daily - Monday through Friday inclusive, Legal Massachusetts
-----
Holidays excluded.
1. Sweep and damp mop floor.
2. Clean all mirrors, powder shelves, dispensers and
receptacles, bright work, flushometers, piping and
toilet seat hinges.
3. Wash both sides of toilet seats.
4. Wash all basins, bowls and urinals.
5. Dust clean all powder room fixtures.
6. Empty and clean paper towel and sanitary receptacles.
7. Remove waste paper and refuse to designated area.
8. Refill soap dispensers, towel dispensers, vending
sanitary dispensers (materials to be supplied by
Landlord).
9. A sanitizing solution will be used in all lavatory
cleaning.
Monthly
-------
1. Machine scrub lavatory floor.
2. Wash all partitions and tile walls in lavatories.
3. Dust exhaust vents and ceiling diffusers.
MAIN LOBBY, ELEVATORS, AND CORRIDORS
------------------------------------
Daily - Monday through Friday inclusive, legal Massachusetts
-----
Holidays excluded.
1. Wash or vacuum all floors.
2. Wash all rubber mats.
3. Clean all elevators, wash or vacuum floor, wipe down
walls and doors.
4. Spot clean any metal work in lobby.
5. Spot clean any metal work surrounding
D-3
<PAGE>
building entrance doors.
6. Spot clean and polish guard desk.
7. Vacuum all corridor carpets.
Weekly
------
1. All resilient tile floors in public areas to be treated
equivalent to spray buffing.
2. Shampoo carpeting in elevator.
STAIRWELLS
----------
Weekly - Monday through Friday inclusive, Legal Massachusetts
------
Holidays excluded.
1. Sweep all stairways.
SPECIAL NOTE
------------
1. Upon completion of cleaning, all lights will be turned
off and doors locked, leaving premises in an orderly
condition.
2. Any security problems will be immediately reported to
the security officer on duty.
3. Any maintenance problems discovered will be promptly
reported to building superintendent.
4. All cleaning personnel will wear identification badges
with their picture at all times while in the building.
D-4
<PAGE>
[LETTERHEAD OF PERITUS]
December 2, 1994
Mr. Tom Maher
Bull Worldwide Information Systems
Law Office
Technology Park
Billerica, MA 01821
Re: PERITUS LETTER OF INTENT FOR LEASE SPACE - 300 CONCORD ROAD BILLERICA
---------------------------------------------------------------------
Dear Tom:
This letter is to confirm Peritus' intention to enter into a lease agreement
with Bull assignable to Wang. This lease agreement covers approximately 32,000
square feet of office and computer space at 300 Concord Road in Billerica, MA.
We are continuing our lease negotiations with Bull and Wang and expect a
resolution within the next few weeks.
Please let me know if you require anything further.
Regards,
/s/ Allen K. Deary
Allen K. Deary
Vice President
cc: Mike Farley
Bob Devito
<PAGE>
LEASE AMENDMENT
This Lease Amendment is entered in as of this 1st day of October, 1995,
between Wang Laboratories, Inc., a Delaware corporation ("Landlord") and Peritus
Software Services, Inc., a ________________ corporation ("Tenant").
Reference is made to a certain lease between Landlord and Tenant dated as
of February 1, 1995 (the "Lease"). This Lease Amendment amends certain
provisions of the Lease. All capitalized terms not defined herein shall have
the same meaning as set forth in the Lease.
1. Demise and Term. Landlord hereby leases and demises to Tenant and
---------------
Tenant hereby leases from Landlord, subject to and with the benefit of the
terms, covenants, conditions and provisions of the Lease, as the same is
affected by the provisions of this Lease Amendment, certain premises located on
the first floor of the Building, consisting of approximately 8678 square feet,
and shown on the plan attached as Exhibit A (the "Additional Premises"). With
respect to the Additional Premises, the term will commence and the increased
rent provisions described below will take effect 5 days after notice from
Landlord to Tenant that Landlord's Work (as defined below) on the Additional
Premises is substantially complete (the "Additional Premises Commencement
Date"), and shall continue for the Term (as defined in the Lease), unless sooner
terminated pursuant to the provisions of the Lease. The term "substantially
completed" as used herein shall mean that the work to be performed by Landlord
pursuant to Section 2 of this Lease Amendment has been completed with the
exception of: (a) minor items which can be fully completed without material
interference with the use of the Premises by Tenant for the Permitted Uses, (b)
other items which because of the season or weather or the nature of the item are
not practicable to do at the time and (c) items which are incomplete because of
Tenant Delays, which shall mean (i) the Tenant's failure to timely submit or
approve plans hereunder or (ii) the Landlord's inability to timely obtain or
install materials, fixtures or equipment requested by the Tenant which are not
included in the work to be performed by Landlord pursuant to Exhibit B, (iii)
change orders submitted by Tenant for further alterations or additions, or (iv)
the failure by Tenant to pay to Landlord upon the execution of this Lease
Amendment, the amount, if any, required to be paid for Tenant Improvements as
set forth in Section 2 below. When the dates of the beginning and end of the
Term of the Additional Premises have been determined such dates shall be
evidenced by a document in form for recording executed by Landlord and Tenant
and delivered each to the other.
2. Tenant Improvements. Landlord shall cause to be performed, at
-------------------
Tenant's expense, the work required by Exhibit B
1
<PAGE>
("Landlord's Work"). All Landlord's Work shall be done in a good and workmanlike
manner employing good materials and so as to conform to all applicable
governmental laws, ordinances and regulations. Tenant agrees that Landlord may
make any changes in such work which may become reasonably necessary or
advisable, other than substantial changes, without approval of Tenant, provided
notice is promptly given to Tenant; and Landlord may make substantial changes in
such work, with the written approval of Tenant, which Tenant agrees will not be
unreasonably withheld. Landlord shall use reasonable efforts to substantially
complete Landlord's Work by September 15, 1995 (the "Additional Premises
Delivery Date"), as the same may be extended pursuant to a force majeure event
as described in Section 9.5 of the Lease, but Landlord shall not be liable to
Tenant or any other party for any damages suffered as a result of any failure by
Landlord to substantially complete Landlord's Work by the Additional Premises
Delivery Date.
Tenant agrees that it will, proceeding with all reasonable dispatch from
the time it receives from Landlord a notice that the Additional Premises are
ready for work by Tenant, perform the work to be done by Tenant as set forth on
Exhibit C ("Tenant's Work"), provided that no other work shall be done or
fixtures or equipment installed by Tenant except with the prior written approval
of Landlord and provided further that all work by Tenant shall be done in
accordance with Section 5.1.5 of the Lease.
During the period of occupancy of the Additional Premises by Tenant prior
to the Additional Premises Commencement Date, all provisions of the Lease and
this Lease Amendment except the provisions relating to the payment of rent for
the Additional Premises shall apply to the extent that said provisions may be
made applicable to said period.
Tenant's Construction Representative (as defined below) may enter upon the
Premises during the progress of Landlord's Work to inspect the progress thereof
and to determine if the work is being performed in accordance with the
requirements of this Section. Tenant shall promptly give to Landlord notices of
any alleged failure by Landlord to comply with those requirements.
Landlord's Work shall be deemed approved by Tenant when Tenant commences
occupancy of the Additional Premises for business purposes except for items of
Landlord's Work which are uncompleted or do not conform to Exhibit B and as to
which Tenant shall, in either case, have given notice to Landlord by providing a
"Punch List" prior to such commencement of occupancy. If Tenant shall not have
commenced occupancy of the Premises for business purposes within 30 days after
the Additional Premises Commencement Date, a certificate of completion by a
licensed architect or registered engineer shall be conclusive evidence that
Landlord's Work has been completed except for items stated
2
<PAGE>
in such certificate to be incomplete or not in conformity with Exhibit B.
Each party authorizes the other to rely in connection with plans and
construction upon approval and other actions on the party's behalf by any
Construction Representative of the party named below or any person hereafter
designated in substitution or addition by notice to the party relying. Tenant's
Construction Representative shall be Allen Deary and Landlord's Construction
Representative shall be Michael Farley.
Landlord agrees to correct any defects due to faulty workmanship or
materials in Landlord's Work for the Additional Premises, provided Tenant shall
have given written notice of such defects to Landlord prior to the first
anniversary of the Additional Premises Commencement Date. Except for the
Landlord's Work, the Premises are leased to Tenant in "AS IS" and "WHERE IS"
condition, without representation or warranty of any kind and Landlord makes no
express or implied warranty that the Premises are suitable for the Permitted
Uses, for Tenant's intended use of the Premises or for any purpose whatsoever.
Without limiting the generality of the foregoing, Tenant understands and agrees
that LANDLORD HEREBY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR THE PARTICULAR PURPOSE WITH RESPECT TO THE PREMISES AND ALL SYSTEMS
AND EQUIPMENT THEREIN.
3. Rent Increase. From and after the Additional Premises Commencement
-------------
Date, the Annual Fixed Rent shall be increased by $167,108.95, so that
thereafter the Annual Fixed Rent shall be equal to $636,543.95. From and after
the Additional Premises Commencement Date, the Monthly Rent Payment shall be
increased by $13,925.75, so that thereafter the Monthly Rent Payment shall be
equal to $53,045.33. The Rent increase amounts are based on an estimate of the
cost of Landlord's Work of $210,075.00. If the actual cost of Landlord's Work
is higher or lower than $210,075.00, Landlord shall provide an accounting of the
cost to Tenant after Landlord's Work is substantially completed, and the actual
increase shall be adjusted accordingly. Landlord and Tenant agree to execute a
subsequent Lease Amendment to confirm such adjustment at the request of either
party.
4. Default and Effective Date. In addition to any other remedies
--------------------------
Landlord may have under the Lease or otherwise, Landlord may terminate this
Lease Amendment, cease Landlord's Work on the Additional Premises, and retain
all amounts paid hereunder and under the Lease if a default occurs and remains
uncured beyond any applicable notice and grace periods under the Lease prior to
the later of the Additional Premises Commencement Date or Tenant's commencing
occupancy of the Additional Premises. From and after the Additional Premises
Commencement Date, all terms, covenants, conditions and provisions of the Lease,
as the same are affected by this Lease Amendment, shall apply to the Premises
3
<PAGE>
and the Additional Premises.
5. Applicable Law and Severance. This Lease Amendment shall be governed
----------------------------
by and construed in accordance with the laws of the Commonwealth of
Massachusetts. If any term, covenant, condition or provision of this Lease
Amendment or the application thereof to any person or circumstances (other than
the provisions requiring increased rent payments) shall be declared invalid, or
unenforceable by the final ruling of a court of competent jurisdiction having
final review, the remaining terms, covenants, conditions and provisions of this
Lease and their application to persons or circumstances shall not be affected
thereby and shall continue to be enforced and recognized as valid agreements of
the parties, and in the place of such invalid or unenforceable provision, there
shall be substituted a like, but valid and enforceable provision which comports
to the findings of the aforesaid court and most nearly accomplishes the original
intention of the parties.
6. No Other Agreement. There are no oral or written agreements between
------------------
Landlord and Tenant affecting this Lease Amendment other than the Lease. The
Lease, and this Lease Amendment, may be amended, and the provisions thereof may
be waived or modified, only by instruments in writing executed by Landlord and
Tenant.
7. No Representations by Landlord. Neither Landlord nor any agent of
------------------------------
Landlord has made any representations or promises with respect to the Premises,
the Additional Premises or the Building except as herein expressly set forth,
and no rights, privileges, easements or licenses are granted to Tenant except as
herein expressly set forth.
8. Titles. The titles of the several Sections contained herein are for
------
convenience only and shall not be considered in construing the Lease or this
Lease Amendment.
9. Submission Not an Offer. The submission of a draft of this Lease or a
-----------------------
summary of some or all of its provisions does not constitute an offer to lease
or demise the Additional Premises, it being understood and agreed that neither
Landlord nor Tenant shall be legally bound with respect to the leasing of the
Additional Premises unless and until this Lease Amendment has been executed by
both Landlord and Tenant and a fully executed copy delivered.
10. Tenant's Right to Remove Miller Furniture. Because Landlord has
-----------------------------------------
purchased and installed additional Miller Furniture in the Additional Premises,
the second paragraph of Section 3.1 is amended to read as follows:
Landlord and Tenant acknowledge that included in the
4
<PAGE>
Landlord's Work is the installation of certain Herman Miller Systems Furniture
(the "Miller Furniture"). With respect to the original Premises, Landlord has
purchased the Miller Furniture and amortized the cost of the same over seven
years so that the annual rent for each year of the Term with respect to the
original Premises includes 14.29% of the Miller Furniture cost. With respect to
the Additional Premises, Landlord has purchased additional Miller Furniture and
amortized the cost of the same over 76 and 1/2 months so that the annual rent
for each year of the Term with respect to the Additional Premises includes 15.79
of the Miller Furniture cost. Accordingly, at the expiration of the Term, and
provided no Event of Default has occurred that has not been cured at the
expiration of the Term, Landlord agrees Tenant may either (i) remove a total of
56.44 percent of the Miller Furniture from the entire Premises, including both
the original Premises and the Additional Premises, or (ii) pay Landlord
$117,931.00, which will be the remaining unamortized cost of the Miller
Furniture at the end of the Term installed in both the original Premises and
Additional Premises, and thereafter remove all of the Miller Furniture, in
either case such removal to be completed not more than 30 days prior to the
expiration of the Term and the Premises are to be otherwise in the condition
required by Section 5.1.10.
11. Expansion Rights and Obligations. Upon execution of this Lease
--------------------------------
Amendment and continuing until the date one (1) year from the date of execution
of this Lease Amendment (the "Put Date"), Tenant shall have a right of first
refusal to lease the premises located on the first floor of the Building,
consisting of approximately 7974 square feet and shown on the Plan Attached
hereto as Exhibit A (the "Expansion Premises"), subject to the terms and
conditions of this Section 11. If Landlord has reached an agreement with
another tenant to lease the Expansion Premises for a specified rent and a
specified allowance for tenant improvements (which allowance may be equal to
zero), then Landlord shall provide written notice to Tenant of such agreement
and Tenant shall have 7 days from the date of Landlord's notice to provide
written notice to Landlord that Tenant desires to lease the Expansion Premises
on the terms set forth in Landlord's notice (except that under all circumstances
if Tenant leases the Expansion Premises the term of the lease with respect to
the Expansion Premises shall be coterminous with the term of the Lease) . If
Tenant provides such notice, Tenant shall have 7 days from the date of Tenant's
notice to enter a lease amendment for the Expansion Premises prepared by
Landlord reflecting the terms of Landlord's notice. If Tenant fails to either
provide its notice or to execute and deliver the required lease amendment within
the time required, Landlord shall be free to lease the Expansion Premises to any
party on terms not more favorable to the tenant than those described in
Landlord's notice. If the terms of any subsequent agreement to lease the
Expansion Premises to another tenant are more favorable to the tenant than the
terms
5
<PAGE>
contained in the original Landlord's notice, Landlord shall be required to
again initiate the procedure provided for in this Section and allow Tenant the
right to lease the Expansion Premises pursuant to the terms of such more
favorable agreement. Tenant's rights under this Section shall only apply if at
both the time of delivery of Tenant's notice and at the time of execution of the
lease amendment for the Expansion Premises there exists no event of default that
remains uncured. In addition to the foregoing, Tenant agrees that in
consideration of Landlord's granting Tenant the right of first refusal with
respect to the Expansion Premises, Tenant agrees that if Landlord has not
entered an agreement to lease the Expansion Premises to any party on or within 1
year after the Put Date, then at any time for 1 year after the Put Date Landlord
may require that Tenant execute a Lease Amendment within 15 days after written
notice to Tenant pursuant to which Tenant shall be required to lease the
Expansion Premises on the same rent, buildout provisions, and other terms and
conditions that applied to Tenant's leasing of Additional Premises pursuant to
this Lease Amendment. Failure of Tenant to execute and deliver such a lease
amendment with 15 days after landlord's notice requiring the same shall
constitute a default under the Lease, provided, however, that Landlord shall
only be entitled to require Tenant to lease the Expansion Premises within the
one year period after the Put Date.
12. Additional Expansion Rights and Obligations. If Landlord and Tenant
-------------------------------------------
executed the lease amendment for the Expansion Premises pursuant to Section 11
above, then from the date of such amendment and continuing until the date one
(1) year thereafter, Tenant shall have a right of first refusal to lease the
premises located on the first floor of the Building, consisting of approximately
3784 square feet and shown on the plan attached hereto as Exhibit A (the "Right
of First Refusal Premises"), subject to the terms and conditions of this Section
12. If Landlord has reached an agreement with another tenant to lease the Right
of First Refusal Premises for a specified rent and a specified allowance for
tenant improvements (which allowance may be equal to zero), then Landlord shall
provide written notice to Tenant of such agreement and Tenant shall have 7 days
from the date of Landlord's notice to provide written notice to Landlord that
Tenant desires to lease the Right of First Refusal Premises on the terms set
forth in Landlord's notice (except that under all circumstances if Tenant leases
the Right of First Refusal Premises the term of the lease with respect to the
Right of First Refusal Premises shall be coterminous with the term of the
Lease). If Tenant provides such notice, Tenant shall have 7 days from the date
of Tenant's notice to enter a lease amendment for the Right of First Refusal
Premises prepared by Landlord reflecting the terms of Landlord's notice. If
Tenant fails to either provide its notice or to execute and deliver the required
lease amendment within the time required, Landlord shall be free to lease the
Right of First
6
<PAGE>
Refusal Premises to any party on such terms as Landlord shall deem advisable and
free of any obligation to lease the Right of First Refusal Premises to Tenant.
Tenant's rights under this Section shall only apply if Tenant and Landlord have
entered a Lease Amendment for the Expansion Premises and at both the time of
delivery of Tenant's notice and at the time of execution of the lease amendment
for the Right of First Refusal Premises there exists no event of default
hereunder or under the Lease that remains uncured.
13. Extension Rights and Obligations. If Landlord requires Tenant to
--------------------------------
execute the lease amendment for the Expansion Premises pursuant to the second
to last sentence of Section 11 above, then Tenant shall have the right to extend
the Term of the Lease, as the same may be amended from time to time, for one
additional period of 3 years, by written notice to Landlord given not later than
12 months prior to the expiration of the original Term of the Lease. In the
event Tenant exercises its option to extend the Term, the Lease will remain in
effect for the entire premises leased by Tenant on the expiration of the
original Term, for a period of 3 years from such expiration date, except that
the Annual Rent shall be the fair market rent (but not less than $12.50 per
rentable square foot on a gross lease basis), Landlord shall not be required to
perform any buildout work; and there shall be no further rights to extend or
expand the premises. In addition, Tenant's rights under this Section shall only
apply if both the time of delivery of Tenant's extension notice and at the time
of commencement of the extension term there exists no event of default hereunder
or under the Lease that remains uncured.
As amended hereby, Landlord and Tenant acknowledge and confirm that the
Lease remains in full force and effect.
WITNESS the execution hereof under seal as of the date first above written.
Landlord: Tenant:
Wang Laboratories, Inc. Peritus Software Services, Inc.
By: /s/ Michael F. Farley By: /s/ Allen K. Deary
----------------------- -------------------------
Its: Its:
Hereunto duly authorized Hereunto duly authorized
(attach corporate vote)
7
<PAGE>
EXHIBIT A
The Premises are shown as the shaded areas on the attached plan.
[Diagram of Premises]
8
<PAGE>
EXHIBIT B
Landlord's Work
Connector portion of the Building
---------------------------------
Install refurbished Herman Miller partition cubicles, 5' high with 30" work
surface, including corner surfaces, 2 flipper files with lights under, 2
pedestal files, pencil drawer, keyboard drawer, cabled and powered per
specifications to be attached
Manufacturing portion of the Building
-------------------------------------
Install refurbished Herman Miller partition cubicles, 5' high with 30" work
surface, including corner surfaces, 2 flipper files with lights under, 2
pedestal files, pencil drawer, keyboard drawer, cabled and powered per
specifications to be attached
new carpet to match existing carpet in manufacturing building
paint walls and ceiling
build out office area in computer room with demountable walls, cabled and
powered per specifications to be attached
Except for the foregoing Landlord's Work, the Premises are leased to Tenant
in "AS IS" and "WHERE IS" condition, without representation or warranty of any
kind.
9
<PAGE>
EXHIBIT C
Tenant's Work
All work, other than Landlord's Work, required by Tenant for Tenant's use
and occupancy.
10
<PAGE>
Expansion Notice
Pursuant to your letter dated December 5, 1996 and the Lease, by and between
Peritus Software Services, Inc., and Wang Laboratories, Inc., dated 2/1/95 as
amended, Peritus hereby notifies Wang that it desires to exercise its option by
expanding its Premises by including a portion of the Expansion Premises in the
amount of 4,000 leaving a 3,974 sf residual to be exercised with prior written
notice to the Landlord on or before the anniversary date of this Amendment.
Peritus desires to include the amortization of the TI's as additional monthly
rent.
Tenant:
Peritus Software Services, Inc.
By: /s/ John E. Macphee
-----------------------------------
Its: Director of Finance and Treasurer
----------------------------------
Date: 2/13/97
---------------------------------
<PAGE>
EXHIBIT 10.6
COMMON STOCK PURCHASE AGREEMENT
BETWEEN
PERITUS SOFTWARE SERVICES, INC.
AND
BULL HN INFORMATION SYSTEMS INC.
DATED
MAY 29, 1992
<PAGE>
Peritus Software Services, Inc.
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1
Issuance of Common Stock................................................................... 1
SECTION 2
Closing; Delivery.......................................................................... 1
2.1 Closing.............................................................................. 1
2.2 Delivery............................................................................. 1
SECTION 3
Representations and Warranties of the Company.............................................. 1
3.1 Organization and Standing............................................................ 1
3.2 Capitalization....................................................................... 2
3.3 Subsidiaries......................................................................... 2
3.4 Authorization........................................................................ 2
3.5 Governmental Consent, Etc............................................................ 2
3.6 Offering............................................................................. 3
3.7 Compliance with Other Instruments,
None Burdensome, Etc................................................................. 3
3.8 Litigation, Etc...................................................................... 3
3.9 Corporate Records.................................................................... 3
3.10 Disclosure........................................................................... 4
SECTION 4
Representations and Warranties of Purchaser................................................ 4
4.1 Experience........................................................................... 4
4.2 Investment........................................................................... 4
4.3 Foreign Purchasers................................................................... 4
4.4 Rule 144............................................................................. 5
4.5 No Public Market..................................................................... 5
4.6 Access to Data....................................................................... 5
4.7 Authorization........................................................................ 6
SECTION 5
Conditions to Closing of Purchasers........................................................ 6
5.1 Representations and Warranties....................................................... 6
5.2 Performance.......................................................................... 6
5.3 Qualifications....................................................................... 6
5.4 Board of Directors................................................................... 6
5.5 Stock Certificates................................................................... 6
5.6 No Adverse Development............................................................... 6
</TABLE>
<PAGE>
TABLE OF CONTENTS (cont'd)
--------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6
Conditions to Closing of Company.......................................................... 7
6.1 Representations..................................................................... 7
6.2 Payment of Purchase Price........................................................... 7
6.3 No Adverse Development.............................................................. 7
SECTION 7
Affirmative Covenants of the Company and the Purchaser.................................... 7
7.1 Financial Information............................................................... 7
7.2 Additional Information.............................................................. 7
7.3 Inspection.......................................................................... 8
7.4 Termination of Covenants............................................................ 8
7.5 Board Representation................................................................ 8
7.6 Visitation Rights................................................................... 8
7.7 Board Meetings...................................................................... 9
7.8 Certain Extraordinary Transactions.................................................. 9
SECTION 8
Restrictions on Transferability of Securities;Compliance with Securities Act.............. 10
8.1 Restrictions on Transferability..................................................... 10
8.2 Restrictive Legends................................................................. 10
SECTION 9
Further Restrictions on Transfer of Common Stock.......................................... 11
9.1 Voluntary Transfers................................................................. 11
9.2 Death of a Holder................................................................... 11
9.3 Insolvency or Bankruptcy............................................................ 11
9.4 Exceptions to Restrictions.......................................................... 11
9.5 Transfers in Violation of Agreement................................................. 12
9.6 Purchase Price...................................................................... 12
9.7 Tenders............................................................................. 14
9.8 Waiver, Disposition of Stock........................................................ 14
9.9 Notices............................................................................. 14
9.10 Legended Certificates............................................................... 14
</TABLE>
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<PAGE>
TABLE OF CONTENTS (cont'd)
---------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 10
Additional Issuance of Common Stock........................................................ 15
SECTION 11
Purchaser's Right of First Refusal......................................................... 15
11.1 Right of First Refusal............................................................... 15
SECTION 12
Miscellaneous.............................................................................. 17
12.1 Governing Laws....................................................................... 17
12.2 Successors and Assigns............................................................... 17
12.3 Severability......................................................................... 17
12.4 Entire Agreement..................................................................... 17
12.5 Counterparts......................................................................... 17
12.6 Finder's Fees........................................................................ 17
12.7 Expenses............................................................................. 18
12.8 Other Remedies....................................................................... 18
12.9 Amendment and Waivers................................................................ 18
12.10 Survival of Agreements............................................................... 18
12.11 Delays or Omissions.................................................................. 18
12.12 Attorneys' Fees...................................................................... 18
12.13 Notices.............................................................................. 18
12.14 Time................................................................................. 19
12.15 Construction of Agreement............................................................ 19
12.16 No Endorsement....................................................................... 20
12.17 Pronouns............................................................................. 20
12.18 Further Assurances................................................................... 20
12.19 Absence of Third Party Beneficiary Rights............................................ 20
</TABLE>
-iv-
<PAGE>
Peritus Software Services, Inc.
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
Agreement made effective as of the 29th day of May, 1992 by and between
Peritus Software Services, Inc., a Massachusetts corporation having a business
address of 55 Cambridge Street, Suite 202, Burlington, MA 01803 (the "Company"),
and Bull HN Information Systems Inc., a Delaware corporation having a business
address of Technology Park, Billerica, MA 01821 (the "Purchaser").
SECTION 1
Issuance of Common Stock
------------------------
Subject to the terms and conditions hereof, the Company will sell and issue
to the Purchaser, and the Purchaser will purchase from the Company, 23,000
shares of the Company's Common Stock, which amount shall constitute 11.5 percent
of the shares of Common Stock authorized immediately after such issuance.
SECTION 2
Closing; Delivery
-----------------
2.1 Closing. The closing of the purchase and sale of the Common Stock
-------
hereunder (the "Closing") shall be held at the offices of Nutter, McClennen &
Fish, One International Place, Boston, Massachusetts 02110-2699 on May 29, 1992,
or at such other time and place as the Company and the Purchaser shall mutually
agree.
2.2 Delivery. At the Closing, the Company shall deliver to the Purchaser
--------
a certificate representing the Common Stock which the Purchaser is purchasing.
It is understood and agreed that the sole consideration for such shares is the
transfer and assignment by the Purchaser to the Company of the items of
equipment and other tangible personal property specified in Exhibit A attached
hereto, and delivered to the Company in connection with that certain Statement
of Work between the Purchaser and the Company effective as of February 3, 1992
and executed and delivered simultaneously with the execution and delivery of
this Agreement.
SECTION 3
Representations and Warranties
------------------------------
of the Company
--------------
The Company hereby represents and warrants to the Purchaser that all of the
statements made below in this Section 3 are true and correct in all material
respects.
3.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. The Company has the full power and authority to
carry on its business as now conducted and as proposed to be conducted in the
Company's business plan dated December 6, 1991 (the "Business Plan") heretofore
<PAGE>
furnished pursuant to the Purchaser. The Company qualified as a foreign
corporation in each jurisdiction where its failure to be so qualified would have
a material and adverse effect on its operations or financial condition.
3.2 Capitalization.
--------------
3.2.1 The authorized Capital Stock of the Company consists of
200,00 shares of Common Stock, without par value. All issued and outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued and are full paid and non-assessable. The Company has (or at the Closing
will have) reserved 23,000 shares of Common Stock for issuance hereunder.
3.2.2 All outstanding securities of the Company were issued in
compliance with all applicable federal and state securities laws.
3.3 Subsidiaries. The Company has no subsidiaries or affiliated companies
------------
and does not otherwise own or control, directly or indirectly, any equity
interest in any corporation, association, joint venture, partnership or other
business entity.
3.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Company, the authorization,
sale, issuance and delivery of the Common Stock sold to the Purchaser hereunder
and the performance of all of the Company's obligations hereunder has been
taken. This Agreement, when executed and delivered by the Company, shall
constitute a valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. The Common
Stock sold to the Purchaser hereunder, when payment therefor has been received
by the Company, will be validly issued, fully paid and non-assessable and free
of any liens or encumbrances, other than those created by or imposed upon the
holder thereof through no action of the Company; provided, however, that the
Common Stock may be subject to restrictions on transfer under state and federal
securities laws as set forth herein. The sale of Common Stock hereunder is not
subject to any preemptive rights or rights of first refusal.
3.5 Governmental Consent, Etc. No consent, approval or authorization of,
-------------------------
or designation, declaration or filing with, any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement or the offer, sale or issuance of Common Stock
hereunder, or the consummation of any other transaction contemplated hereby,
except, if required, the filing of Form D with the Securities and Exchange
Commission and qualifications or filings under applicable state blue sky laws,
which qualifications, if required, will
-2-
<PAGE>
have been obtained and will be effective on the Closing, and any such filings
will be made within the time prescribed.
3.6 Offering. The Company will not take any action that will cause the
--------
issuance and delivery of the shares of its Common Stock as contemplated hereby
to constitute a violation of the federal Securities Act of 1933, as amended (the
"Securities Act"), or any applicable state blue sky laws. Subject to the
accuracy of the Purchaser's representations in Section 4 hereof, the offer, sale
and issuance of the Common Stock to be issued in conformity with the terms of
this Agreement constitute transactions exempt from the registration requirements
of Section 5 of the Securities Act and comply with all applicable state blue sky
laws.
3.7 Compliance with Other instruments, None Burdensome, Etc. The Company
-------------------------------------------------------
is not in violation in any material respect of any term of its Articles of
organization or Bylaws, as amended and in effect on and as of the Closing. The
Company is not in violation in any respect of any term or provision of any
mortgage, indebtedness, indenture, contract, agreement, instrument, judgment or
decree, order, statute, rule or regulation applicable to it where such violation
would materially adversely affect the Company, its operations or financial
condition and there is no such term or provision which materially adversely
affects the Company, its operations or financial condition as presently
conducted or as contemplated to be conducted. The execution, delivery and
performance of and compliance with this Agreement, and the issuance of the
Common Stock sold hereunder, have not resulted and will not result in any
material violation of or conflict with, or constitute a material default under,
any mortgage, indebtedness, indenture, contract, agreement, instrument, judgment
or decree, order, statute, rule or regulation applicable to the Company, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company.
3.8 Litigation Etc. There are no actions, suits, proceedings or
--------------
investigations pending against the Company or, to the best knowledge of the
Company, any of its officers, directors or employees or properties, before any
court or governmental agency (nor, to the best knowledge of the Company, is
there any reasonable basis therefor or threat thereof), which, either in any
particular case or in the aggregate, might result in any material adverse change
in the business or financial condition of the Company, or in any material
impairment of the right or ability of the Company to carry on its business as
now conducted or as proposed to be conducted in the Business Plan or in any
material liability on the part of the Company, and none which questions the
validity of this Agreement or any action taken or to be taken in connection
herewith.
3.9 Corporate Records. The Company has made available to the Purchaser
-----------------
true, correct and complete copies (including all amendments thereto) of: (i) the
Articles of Organization and Bylaws of the Company, together with all amendments
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thereto which have become effective on or before the Closing; (ii) the minute
book of the Company containing a complete summary of all actions taken by the
shareholders and by the Board of Directors of the Company since the time of
incorporation, reflecting all transactions referenced in such minutes accurately
in all material respects; (iii) the stock transfer books of the Company; (iv)
all written agreements involving the sale by the Company of its capital stock;
and (v) all employee stock option and stock purchase plans of the Company.
3.1 Disclosure. The Company believes it has fully provided the Purchaser
----------
with all of the information which such Purchaser has requested for deciding
whether to purchase Common Stock hereunder and all information reasonably
necessary to enable such Purchaser to make such decision. This Agreement, the
Business Plan and any written statement or certificate furnished to the
Purchaser pursuant to this Agreement in connection with the transactions
contemplated by this Agreement, when taken together, do not contain any untrue
statement of a material fact nor omit to state a material fact necessary to make
the statements made not misleading in light of the circumstances in which they
were made.
SECTION 4
Representations and Warranties of Purchaser
-------------------------------------------
The Purchaser hereby represents and warrants to the Company with respect to
its purchase of the Common Stock hereunder that:
4.1 Experience. Purchaser has substantial experience in evaluating and
----------
investing in private placement transactions so that Purchaser is capable of
evaluating the merits and risks of an investment in the Company and has the
capacity to protect its own interests in connection with the purchase of the
Common Stock. Purchaser understands that the investment to be made in
connection with the acquisition of Common Stock is speculative and involves
significant risk. Purchaser has no need for liquidity in this investment, has
the ability to bear the economic risk of this investment and can afford a
complete loss of the purchase price.
4.2 Investment. Purchaser is acquiring the Common Stock for investment
----------
for its own account, and not with the view to, or for resale in connection with,
any "distribution" of all or any portion thereof within the meaning of the
Securities Act. Purchaser understands that the Common stock to be purchased
hereunder has not been registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of Purchaser's investment
intent and the accuracy of Purchaser's representations as expressed herein.
4.3 Foreign Purchasers. Each Purchaser which is not a resident of the
------------------
United States hereby represents, warrants and agrees that (i) neither such
Purchaser
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nor any person for whom such Purchaser is acting is a U.S. Person (as defined in
this Section 4.3), (ii) it is not acquiring shares of Common Stock for any U.S.
Person, and (iii) all laws in the country of such Purchaser's residence
concerning the issuance to such Purchaser of the Common Stock or the Warrants
have been, or will be prior to the Closing, satisfied. As used in this Section
4.3, "U.S. Person" means a citizen or resident of the United States, including
the estate of any such person, a trust of which any such person is a beneficiary
or a corporation, joint venture, partnership, trust or any other business entity
organized under the laws of the United States. As used in this Section 4.3,
"United States" shall include the territories, possessions and all areas under
the jurisdiction of the United States of America.
4.4 Rule 144. Purchaser acknowledges that the Common Stock being
--------
purchased hereunder must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is
available. Purchaser is aware of the provisions of Rule 144 promulgated under
the Securities Act which permit limited resale of shares purchased in a private
placement, subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the shares, the availability
of certain current public information about the Company, the resale occurring
after the expiration of minimum holding periods after a party has purchased and
paid for the security to be sold, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" (as provided by
Rule 144(f)) and the number of shares being sold during any three-month period
not exceeding specified limitations (except as provided in Rule 144(k)).
4.5 No Public Market. Purchaser understands that no public market now
----------------
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Common Stock
being acquired hereunder and that, even if such a public market exists at some
future time, the Company may not then be satisfying the current public
information requirements of Rule 144.
4.6 Access to Data. Purchaser has received and reviewed the Business
--------------
Plan. In addition, the Purchaser and its representatives have met with
representatives of the Company and thereby have had the opportunity to request
information and ask questions of, and receive answers from, said representatives
concerning the Company and the terms and conditions of this transaction, as well
as to obtain any additional information requested by Purchaser. Any questions
raised by Purchaser or its representatives concerning this transaction have been
answered to the satisfaction of Purchaser. Purchaser's decision to purchase the
Common Stock is based on its own evaluation of the risks and merits of the
purchase and the Company's proposed business activities.
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4.7 Authorization. This Agreement when executed and delivered by
-------------
Purchaser will constitute a valid and legally binding obligation of Purchaser,
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
Purchaser's obligations to purchase the Common Stock at the Closing are, at
the option of the Purchaser, subject to the fulfillment as of the Closing of the
following conditions:
5.1 Representations and Warranties. The representations and warranties
------------------------------
made by the Company in Section 3 hereof shall be true and correct in all
material respects when made, and shall be true and correct in all material
respects on the Closing, with the same force and effect as if they had been made
on and as of said date.
5.2 Performance. The Company shall have performed and complied with all
-----------
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 Qualifications. All authorizations, approvals or permits, if any, of
--------------
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Common Stock shall have been duly obtained and shall be effective on and as of
the Closing.
5.4 Board of Directors. The Board of Directors of the Company as of the
------------------
Closing will be comprised of Dominic Chan, Allen Deary, Christopher Bailey, and
David DeVoy.
5.5 Stock Certificates. The Company shall have delivered to the Purchaser
------------------
a certificate for the Common Stock purchased by the Purchaser.
5.6 No Adverse Development. There shall be no order, decree or ruling by
----------------------
any court or governmental agency or threat thereof or any other fact or
circumstance which might prohibit or render illegal or have a material adverse
effect on the business or financial affairs of the Company or the transactions
contemplated hereunder.
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SECTION 6
Conditions to Closing of Company
--------------------------------
The Company's obligation to sell and issue the Common Stock to the
Purchaser at the Closing is, at the option of the Company, subject to the
fulfillment of the following conditions:
6.1 Representations. The representations and warranties made by Purchaser
---------------
in Section 4 hereof shall be true and correct in all material respects when
made, and shall be true and correct in all material respects on the Closing,
with the same force and effect as if they had been made on and as of said date.
6.2 Payment of Purchase Price. Purchaser shall have delivered to the
-------------------------
Company the property referenced in Section 2.2 as full payment of the purchase
price for the Common Stock purchased by such Purchaser.
6.3 No Adverse Development. There shall be no order, decree or ruling by
----------------------
any court or governmental agency or threat thereof or any other fact or
circumstance which might prohibit or render illegal or have a material adverse
effect on the business or financial affairs of the Company or the transactions
contemplated hereunder.
SECTION 7
Affirmative Covenants of the Company and the Purchaser
------------------------------------------------------
The Company and the Purchaser, where indicated below, hereby covenant and
agree as follows:
7.1 Financial Information. For so long as the Purchaser is a holder of
---------------------
any of the shares of Common Stock purchased by the Purchaser pursuant to this
Agreement, the Company will deliver to the Purchaser, as soon as practicable
after the end of each fiscal year, and in any event within 45 days thereafter,
unaudited consolidated balance sheets of the Company and its subsidiaries, if
any, as of the end of such fiscal year, and unaudited consolidated statements of
income and unaudited consolidated statements of cash flows of the Company and
its subsidiaries, if any, for such year, and if and when audited statements are
prepared, will provide copies thereof to the Purchaser.
7.2 Additional Information. For so long as the Purchaser is a holder of
----------------------
any shares of the Common Stock initially purchased by the Purchaser pursuant to
this Agreement, the Company will mail to the Purchaser, if and when prepared for
the Company's Board of Directors or officers, unaudited consolidated balance
sheets of the Company as at the end of each quarter, unaudited consolidated
statements of income, and unaudited consolidated statements of
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income, and unaudited consolidated statements of cash flow for each quarter and
for the current fiscal year to date.
7.3 Inspection. The Company shall permit the Purchaser, at such
----------
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers all at such reasonable times as may be requested
by the Purchaser; provided, however, that the Company shall not be obligated
pursuant to this Section 7.3 to provide Purchaser (as opposed to the
representative of the Purchaser serving as a Director of the Company pursuant to
Section 7.5 of this Agreement) with access to any information which the Company
reasonably considers to be a trade secret or similar confidential information;
and provided further, however, that any financial information that might
otherwise be withheld under the preceding proviso will nonetheless be furnished
to Purchaser subject only to Purchaser's written agreement to maintain the
confidentiality thereof.
7.4 Termination of Covenants. The covenants set forth in Sections 7.1,
------------------------
7.2 and 7.3 shall terminate and be of no further force or effect when the
Company has registered a class of securities under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act").
7.5 Board Representation. So long as the Purchaser owns not less than
--------------------
fifty percent (50%) of the shares of the Common Stock purchased by it under this
Agreement (regardless of the percentage of the issued and outstanding shares of
the capital stock of the Company represented thereby), the Company shall use its
best efforts to cause and maintain the election to the Board of Directors of a
representative of the Purchaser.
7.6 Visitation Rights. For so long as the Purchaser holds at least
-----------------
twenty-five percent (25%) of the Common Stock purchased by it hereunder, the
Purchaser will be entitled to have a designated representative present at all
meetings of the Board of Directors of the Company; provided, however, that in
the event the Board intends to discuss or vote upon any matter in which the
Purchaser has an interest, such representative may be excluded therefrom by the
vote of a majority of the directors present at such meeting, and provided,
further, that the Company reserves the right to exclude any Purchaser
representative from any meeting or portion thereof at which attendance by such
representative could adversely affect the attorney-client privilege between the
Company and its counsel. Notwithstanding the foregoing provisions of this
Section 7.6, the provisions of this Section 7.6 shall be of no force or effect
for so long as the Purchaser's representative is serving as a Director of the
Company pursuant to Section 7.5 of this Agreement.
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7.7 Board Meetings. The Company agrees to hold a Board of Directors
--------------
meeting at least four (4) times each calendar year with reasonable intervals
between meetings.
7.8 Certain Extraordinary Transactions. The Company agrees that, until
----------------------------------
the second anniversary of the effective date of this Agreement, the Company
shall not, without the consent of the Purchaser:
(a) sell, transfer or otherwise dispose in any transaction or series of
related transactions of any substantial assets of the Company or its
subsidiaries or of any substantial business unit or division of the
Company or its subsidiaries, it being understood and agreed that for
purposes of this Section 7.8, (i) "substantial" shall mean having a
value in excess of 50% of the Net Book Value of the Company and its
consolidated subsidiaries, determined on the basis of the unaudited
consolidated financial statements of the Company and its
consolidated subsidiaries for the then immediately preceding fiscal
quarter, and (ii) no consent by the Purchaser shall be required for
any pledge or hypothecation of, any grant of a security interest in,
or any foreclosure or similar transfer pursuant to any such pledge,
hypothecation or grant with respect to, any assets, in connection
with one or more financing transactions;
(b) consolidate, reorganize or merge with or into any other legal
person;
(c) commence any bankruptcy action, it being understood and agreed that
the Company and each of its subsidiaries shall within a reasonable
period of time contest any bankruptcy action commenced by a third
party against it;
(d) substantially change the principal scope of the Company's business
activities from software services; or
(e) remove or materially change the duties of Dominic Chan as the Chief
Executive Officer of the Company, or appoint another person in his
place;
it being understood and agreed that for purposes of this Section 7.8, the
Purchaser shall be deemed to have consented to any such action as shall have
been approved by vote of a majority of the requisite quorum of the Board of
Directors of the Company, provided that the nominee of the Purchaser then
serving on the Board of Directors shall have voted with such majority; and
except as aforesaid, the consent of the Purchaser shall be evidenced by a
writing signed on behalf of the Purchaser by an authorized representative of the
Purchaser.
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SECTION 8
Restrictions on Transferability of Securities;
----------------------------------------------
Compliance with Securities Act
------------------------------
8.1 Restrictions on Transferability. The Common Stock being purchased
-------------------------------
hereunder shall not be sold, assigned, transferred or pledged except upon the
conditions specified in this Section 8, which conditions are intended to ensure
compliance with the provisions of the Securities Act. The Purchaser will cause
any proposed purchaser, assignee, transferee or pledgee of the Common Stock to
agree to take and hold such securities subject to the provisions and upon the
conditions specified in this Section 8.
8.2 Restrictive Legends. Each certificate representing (i) the Common
-------------------
Stock purchased hereunder and (ii) any securities issued in respect of such
Common Stock or shares of Common Stock issued upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall be
stamped or otherwise imprinted with legends in substantially the following form
(in addition to any legend required under applicable state securities law):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED
UNLESS: (i) A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO THESE
SHARES, (ii) THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE
COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT OR (iii) THE SHARES ARE SOLD PURSUANT TO RULE
144(k) OF THE ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE
SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE CLERK OF
THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
Each Holder consents to the Company making a notation on its records and
giving instructions to any transfer agent of the Common Stock purchased
hereunder in order to implement the restrictions on transfer established in this
Section 8. The Company hereby agrees, at the specific request of the Purchaser,
to cause the above legend condition with respect to compliance with the
Securities Act to be removed from any certificate evidencing Common Stock issued
to the requesting Purchaser once the securities represented by said certificate
qualify for transfer and sale pursuant to the provisions of Rule 144(k)
promulgated under the Securities Act.
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SECTION 9
Further Restrictions on Transfer of Common Stock
------------------------------------------------
9.1 Voluntary Transfers. Neither the Purchaser nor any transferee under
-------------------
Section 9.4 hereof (the Purchaser and/or any such transferee being referred to
sometimes hereinafter as a "Holder") of any of the shares of Common Stock
purchased by the Purchaser hereunder or issued at any time or from time to time
with respect thereto ("Shares"), may sell, assign, transfer, exchange, pledge,
encumber or otherwise dispose of any Shares, or interest therein, now held or
hereafter acquired by such Holder without first giving a written notice to the
Company, identifying in such notice the proposed transferee, the purchase price,
if any, and terms of the proposed transaction, and offering said Shares to the
Company for purchase by it as hereinafter provided. Within 30 days after
receipt of the notice, the Company may elect to purchase all of the Shares so
offered and if it does not do so, said Shares may be transferred within 90 days
after the expiration of said 30-day period to the proposed transferee upon the
price and terms specified in the notice, provided that any Shares transferred to
said transferee shall thereupon become subject to this Section 9.
9.2 Death of a Holder. In the event of the death of a Holder, such
-----------------
Holder's executors or administrators and each transferee of such Holder's Shares
under Section 9.4 hereof shall, within 90 days after the date of death, give
written notice thereof to the Company offering to it for purchase as hereinafter
provided all of the Shares owned on said date by said Holder and each such
transferee. Within 30 days after receipt of the notice, the Company may elect
to purchase all of the Shares so offered and if it does not do so, said Shares
may be retained by the estate of said Holder or by such transferee subject to
all other provisions of this Section 9. The effectiveness of the provisions of
this Section 9.2 shall expire automatically without any further act or deed upon
the registration of the Common Stock of the Company under Section 12(b) or
Section 12(g) of the 1934 Act.
9.3 Insolvency or Bankruptcy. A transfer of Shares by operation of law
------------------------
to a trustee, receiver, assignee for the benefit of creditors, or other
transferee in any proceedings relating to a Holder or the estate of a Holder in
any court of competent jurisdiction shall not be a transfer subject to these
restrictions; provided, however, that (a) no such transfer by operation of law
shall be made by the Company on its books (except as required by law); and (b)
any further transfer by such transferee shall be subject to the provisions of
this Section 9, including, without limitation the provisions of Section 9.1.
9.4 Exceptions to Restrictions. Except as provided above, these
--------------------------
Restrictions shall be inapplicable to:
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a. Transfers of Shares between a Holder and the trustees of a
trust in which the Holder or the spouse or issue of such Holder has the
principal beneficial interest;
b. Transfers of Shares between a Holder and such Holder's guardian
or conservator;
c. Transfer of the Shares of a deceased Holder to such Holder's
executors or administrators; and
d. Transfers of Shares between the Purchaser and Compagnie de
Machines Bull, a corporation organized and existing under the laws of France
("Bull"), or any entity controlling, controlled by or under common control with
Bull (but only for so long as controlling, controlled by or under common control
with Bull);
provided, that such Shares in the hands of each such transferee shall remain
subject to this Section 9.
9.5 Transfers in Violation of Agreement. If any transfer of Shares is
-----------------------------------
made or attempted contrary to the provisions of this Section 9 or if Shares are
not offered to the Company as required by this Section 9, the Company shall have
the right to purchase said Shares from the owner thereof or his transferee at
any time before or after the transfer, as hereinafter provided. In addition to
any other legal or equitable remedies which it may have, the Company may enforce
its rights by actions for specific performance (to the extent permitted by law)
and may refuse to recognize any transferee as a Holder of Shares for any
purpose, including without limitation for purposes of dividend and voting
rights, until all applicable provisions of this Section 9 have been complied
with.
9.6 Purchase Price. (a) Except as provided in subsection (c) of this
--------------
Section 9.6, the purchase price per share of any Shares which the Company elects
to purchase under this Section 9 shall be the fair value thereof as of the date
on which the right to purchase accrues hereunder (the "Determination Date").
For purposes of this subsection, the fair value of a Share shall be deemed to be
equal to the fair value as determined by the Board of Directors of the Company
(or a duly appointed committee thereof) for purposes of establishing the
exercise price of the last stock option of the Company granted on or prior to
the Determination Date; provided that if no such stock options have been granted
by the Company within six months of the Determination Date, then except as
otherwise provided herein the fair value of a Share shall be the value
determined in accordance with subsection (b); provided further that if shares of
Common Stock are publicly traded on the Determination Date, then the fair value
of a Share shall be determined in such market as hereinafter provided. For
purposes of this subsection: (a) "publicly traded" shares are those
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which are listed or admitted to unlisted trading privileges on a national
securities exchange or as to which bid and offer quotations are reported in the
automated quotation system ("NASDAQ") operated by the National Association of
Securities Dealers, Inc. ("NASD"); and (b) Shares subject to purchase under this
subsection shall be valued as of the Determination Date (or, if such day is not
a trading day in the U.S. securities markets, on the nearest preceding trading
day), on the basis of the closing price of stock of that class as reported with
respect to the market (or the composite of the markets, if more than one) in
which such shares are then traded, or if no such closing prices are reported the
lowest independent offer quotation reported therefor in Level 2 of NASDAQ, or if
no such quotations are reported on the basis of the most nearly comparable
valuation method acceptable to the Company. The value so determined shall be
equitably adjusted to reflect any subsequent stock dividend, stock split,
reverse split or recapitalization of the Company.
(b) Except as provided in subsection (c) of this Section 9.6, if the
provisions of subsection (a) of this Section 9.6 are inapplicable, the purchase
price hereunder shall be the fair value per share of all of the issued and
outstanding Shares as determined by appraisal. Within 30 days after the date of
the Company's election to purchase, the Company shall appoint an appraiser, the
Holder whose shares are being purchased (or such Holder's legally appointed
representatives) shall appoint a second appraiser, and the two appraisers so
appointed shall appoint a third appraiser, or failing action within such period
by any party or the appraisers, any unappointed appraiser or appraisers shall be
appointed by the American Arbitration Association, Boston, Massachusetts, upon
application of any party or appraiser. The appraisers shall proceed by majority
vote to determine the fair value of the Shares as of a convenient date selected
by them, and such determination shall be final and binding upon all interested
persons. The Company shall promptly furnish to the appraisers such information
concerning its financial condition, earnings, capitalization, business prospects
and sales of Shares as they may reasonably request. The appraisers shall
promptly notify in writing the Company, the Holder whose shares of Stock are
being purchased, or such Holder's representatives, and any other interested
person known to the appraisers, of the appraisers' final determination of value.
Each party shall bear the fees and expenses of the appraiser appointed by or for
such party, and the fees and expenses of the third appraiser shall be borne one-
half by the Company and one-half by said Holder or such Holder's
representatives.
(c) Notwithstanding any contrary provisions hereof, in the event of a
proposed sale of Shares to which the provisions of Section 9.1 hereof apply to a
third party in a bona fide transaction for fair value payable in cash or the
equivalent, currently or in future installments, the purchase price of said
Shares shall be the value offered by such third party and the Company shall have
a right of first refusal, exercisable within the period specified in Section
9.1, to purchase said Shares at such price upon equivalent terms. Such right of
first refusal shall not apply to a proposed
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assignment, transfer, exchange, pledge or other disposition of Stock under
Section 9.1 which does not constitute a sale as described above.
9.7 Tenders. All Shares which the Company has elected to purchase
-------
hereunder shall be tendered to the Company, or to one or more assignees or
substitute purchasers designated by it, at the principal office of the Company
at a reasonable date and time specified by it (in any event within 60 days of
the Company's election), by delivery of certificates representing such Shares
endorsed in blank and in proper form for transfer against payment of the
purchase price in cash or by certified or bank checks, or upon such terms as are
applicable under Section 9.6(c).
9.8 Waiver, Disposition of Stock. From time to time the Company may
----------------------------
waive its rights hereunder either generally or with respect to one or more
specific transfers which have been proposed, attempted or made. All action to be
taken by the Company hereunder shall be taken by vote of a majority of its
Directors then in office.
9.9 Notices. All notices and elections under this Section 9 shall be in
-------
writing and shall be delivered or sent by registered or certified mail, return
receipt requested, all charges prepaid, (a) if to the Company addressed to it at
the address of its principal office, to the attention of the Clerk of the
Company, or (b) if to a Holder (or to a Holder's duly appointed representative)
addressed to such Holder (or representative) at the address therefor according
to the stock record books of the Company.
9.10 Legended Certificates. Each certificate representing the Shares or
---------------------
any of them shall be endorsed with the following legend:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF SECTION 9, "FURTHER RESTRICTIONS ON
TRANSFER OF COMMON STOCK," OF A CERTAIN COMMON STOCK PURCHASE AGREEMENT
DATED MAY 29, 1992 BETWEEN THE COMPANY AND BULL HN INFORMATION SYSTEMS INC.
A COPY OF SUCH TERMS AND CONDITIONS MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE CLERK OF
THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY.
Each Holder consents to the Company making a notation on its records and giving
instructions to any transfer agent of the Common Stock purchased hereunder in
order to implement the further restrictions on transfer established in this
Section 9.
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SECTION 10
Additional Issuance of Common Stock
-----------------------------------
The parties hereby acknowledge and agree that, in light of the special
business relationship between the Purchaser and the Company, it may be desirable
to both parties for the Purchaser to acquire additional shares of Common Stock
of the Purchaser, and the parties do hereby further agree that, if the Purchaser
shall so request, the parties shall negotiate in good faith for an additional
investment by the Purchaser in the shares of Common Stock of the Company;
provided, however, that in no event shall the Company have any obligation to
continue to negotiate for such issuance after the expiration of sixty (60) days
from the date of this Agreement.
SECTION 11
Purchaser's Right of First Refusal
----------------------------------
11.1 Right of First Refusal. The Company hereby grants to the Purchaser
----------------------
the right of first refusal to purchase, pro rata, all or any part of any New
Securities (as defined in this Section 11.1) which the Company may, from time to
time, propose to sell and issue. The Purchaser's pro rata share, for purposes
of this right of first refusal, is the ratio of the number of shares of Common
Stock then held by the Purchaser to the total number of shares of Common Stock
of the Company outstanding (assuming, for purposes of calculating such ratio,
complete conversion of all outstanding convertible securities of the Company).
This right of first refusal shall be subject to the following provisions:
11.1.1 "New Securities" shall mean any shares of capital stock of
the Company, whether now authorized or not, and rights, options or warrants to
purchase said shares, and securities of any type whatsoever that are, or may
become, convertible into said shares, provided that "New Securities" does not
include (i) shares of Common Stock issuable upon conversion or exercise of
securities outstanding on the date hereof, (ii) securities offered to the public
generally pursuant to a registration statement, (iii) securities issued pursuant
to the acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization whereby the Company
owns not less than eighty percent (80%) of the voting power of such corporation,
(iv) up to 40,000 shares of the Company's Common Stock (or related options or
warrants exercisable for Common Stock) to be issued to employees, officers and
directors of, and consultants to, and other persons performing services for, the
Company, pursuant to any arrangement approved by the Board of Directors of the
Company, (v) any security if the Purchaser consents in writing that the right of
first refusal shall not apply to such securities, (vi) stock issued pursuant to
any rights or agreements, including, without limitation, convertible securities,
options and warrants, provided that the rights of first refusal established by
this Section 11.1 applied with respect to the initial sale or grant by the
Company of such rights or agreements, (vii) stock issued in connection with any
-15-
<PAGE>
stock split, stock dividend or recapitalization by the Company, or (viii) any
security to the extent that, upon issuance thereof, securities then issued and
outstanding or issuable upon exercise or conversion of securities then issued
and outstanding would not exceed in either voting or dividend rights the
equivalent of 200,000 shares of Common Stock of the Company in the aggregate
(subject to adjustment in the event of any stock split, stock dividend or
recapitalization by the Company), it being understood and agreed that the right
of first refusal provided for in this Section 11 shall apply only with respect
to the securities representing such excess in voting and/or dividend rights, as
the case may be.
11.1.2 In the event the Company proposes to undertake an issuance
of New Securities, it shall give the Purchaser written notice of its intention,
describing the type of New Securities and the price and terms upon which the
Company proposes to issue the same. The Purchaser shall have thirty (30) days
from the date of receipt of any such notice to agree to purchase up to the
Purchaser's pro rata share of such New Securities for the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
11.1.3 In the event that the Purchaser fails to exercise in full
the right of first refusal within said thirty (30) day period, the Company shall
have one hundred eighty (180) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within ninety (90) days from the date of said agreement) to sell the
New Securities respecting which the Purchasers' option was not exercised, at a
price and upon terms no more favorable to the buyers of such securities than
specified in the Company's notice to Purchasers. In the event the Company has
not sold the New Securities or entered into an agreement to sell the New
Securities within said one hundred eighty (180) day period (or sold and issued
New Securities in accordance with the foregoing within ninety (90) days from the
date of said agreement), the Company shall not thereafter issue or sell any New
Securities, without first offering such securities to the Purchaser in the
manner provided above.
11.1.4 The right of first refusal granted under this Agreement
shall expire upon the closing of the first public offering of the Common Stock
of the Company to the general public which is effected pursuant to a
registration statement filed with, and declared effective by, the Commission
under the Securities Act.
11.1.5 The right of first refusal hereunder shall not be
assignable, in whole or in part, except to an affiliate of the Purchaser to
which the Purchaser transfers its entire interest in the Company.
-16-
<PAGE>
SECTION 12
Miscellaneous
-------------
12.1 Governing Laws. This Agreement shall be governed by and construed
--------------
under the laws of the Commonwealth of Massachusetts (and applicable federal
securities laws) as applied to agreements among Massachusetts residents entered
into and to be performed entirely within Massachusetts. The rights, preferences
and privileges of the Company's Common Stock and Common Stock holders shall be
governed by Massachusetts law.
12.2 Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
12.3 Severability. If any provision of this Agreement, or the
------------
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto.
12.4 Entire Agreement. This Agreement, the exhibits hereto, the
----------------
documents referenced herein and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto. The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
12.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original as against any party whose
signature appears thereon, and all of which together shall constitute one and
the same instrument.
12.6 Finder's Fees. The parties hereto each represent to every other
-------------
party that such party neither is, nor will be, obligated for any finder's or
broker's fee or commission in connection with the transactions contemplated
herein. Each party agrees to indemnify and to hold harmless the other from any
liability for any commission or compensation in the nature of a finder's or
broker's fee (and the costs and expenses of defending against such liability or
asserted liability) for which such indemnifying party, its employees, agents or
representatives is responsible.
-17-
<PAGE>
12.7 Expenses. Irrespective of whether the Closing is effected, each of
--------
the Company and the Purchaser shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of this
Agreement.
12.8 Other Remedies. Any and all remedies herein expressly conferred
--------------
upon a party shall be deemed cumulative with, and not exclusive of, any other
remedy conferred hereby or by law on such party, and the exercise of any one
remedy shall not preclude the exercise of any other.
12.9 Amendment and Waivers. Any term or provision of this Agreement
---------------------
requiring performance by a party may be amended, and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only by a writing signed by the
party to be bound thereby. Any amendment or waiver effected in accordance with
this Section shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding, each future holder of all such
securities, and the Company. The waiver by a party of any breach hereof for
default in payment of any amount due hereunder or default in the performance
hereof shall not be deemed to constitute a waiver of any other default or
succeeding breach or default.
12.10 Survival of Agreements. All covenants, agreements, representations
----------------------
and warranties made herein shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
12.11 Delays or Omissions. Except as expressly provided herein, no delay
-------------------
or omission to exercise any right, power or remedy accruing to a party upon any
breach or default of the other party under this Agreement shall impair any such
right, power or remedy of such party nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party, any breach or default under this Agreement,
or any waiver of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party, shall be cumulative and not alternative.
12.12 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party shall be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees.
12.13 Notices. Except as otherwise provided in Section 10, whenever any
-------
party hereto desires or is required to give any notice, demand or request with
respect
-18-
<PAGE>
to this Agreement, each such communication shall be in writing and shall be
effective only if it is delivered by personal service or mailed, United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
Company: Peritus Software Services, Inc.
55 Cambridge Street
Burlington, Massachusetts 01803
Attention: Allen Deary
If to Company, Nutter, McClennen & Fish
with a copy to: One International Place
Boston, Massachusetts 02110-2699
Attention: Paul R. Gupta, Esq.
Purchaser: Bull HN Information Systems Inc.
Technology Park
Billerica, MA 01821
Attention: David DeVoy
If to Purchaser, Thomas J. Gallagher, Esq.
with a copy to: Executive Vice President
Bull HN Information Systems Inc.
Technology Park
Billerica, MA 01821
Such communications shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth above,
they shall be effective five (5) days after being deposited in the United States
mail. Any party may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section.
12.14 Time. Time is of the essence of this Agreement.
----
12.15 Construction of Agreement. This Agreement has been negotiated by
-------------------------
the respective parties hereto and their attorneys and the language hereof shall
not be construed for or against any party. A reference in this Agreement to any
Section shall include a reference to every Section the number of which begins
with the number of the Section to which reference is specifically made (e.g., a
-----
reference to Section 3.2 shall include a reference to Sections 3.2.1 and
3.2.1.1). The titles and headings herein are for reference purposes only and
shall not in any manner limit the construction of this Agreement which shall be
considered as a whole. A reference to an Exhibit or Section means an Exhibit or
Section of this Agreement, unless the context expressly otherwise requires.
-19-
<PAGE>
12.16 No Endorsement. Purchaser understand that no federal or state
--------------
securities administrator has made any finding or determination relating to the
fairness of investment in the Company or purchase of the Common Stock hereunder
and that no federal or state securities administrator has recommended or
endorsed the offering of securities by the Company hereunder.
12.17 Pronouns. All pronouns and any variations thereof shall be deemed
--------
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
12.18 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to better evidence and reflect the transactions described herein
and contemplated hereby, and to carry into effect the intents and purposes of
this Agreement.
12.19 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended nor shall be interpreted to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder or partner of any party hereto, or any other
person, unless specifically provided otherwise herein and, except as so
provided, all provisions hereof shall be personal solely between the parties to
this Agreement.
IN WITNESS WHEREOF, the foregoing Agreement is hereby executed under seal
as of the date first above written.
COMPANY:
PERITUS SOFTWARE SERVICES, INC.
By: /s/ Dominic Chan
----------------------------------------
Dominic Chan, President
By: /s/ Allen Deary
----------------------------------------
Allen Deary, Treasurer
-20-
<PAGE>
PURCHASER:
BULL HN INFORMATION SYSTEMS INC.
By: illegible
----------------------------------------
Name:
Title:
-21-
<PAGE>
EXHIBIT 10.7
AGREEMENT OF AMENDMENT
March 15, 1996
AGREEMENT, made as of the 15th day of March, 1996, by and between
Peritus Software Services, Inc., a Massachusetts corporation (the "Company") and
Bull HN Information Systems Inc. ("Bull HN").
WHEREAS, the Company and Bull HN entered into a certain Common Stock
Purchase Agreement dated May 29, 1992 (the "1992 Bull HN Stock Purchase
Agreement") and a certain Agreement dated September 1, 1994 (the "1994 Bull HN
Agreement"); and
WHEREAS, the Company proposes to enter into a certain Series A
Convertible Preferred Stock and Class A Common Stock Purchase Agreement of even
date herewith (the "Purchase Agreement") with the Purchasers listed on Schedule
I thereto pursuant to which the Purchasers have agreed to purchase an aggregate
of 1,903,525 shares (the "Preferred Shares") of Series A Convertible Preferred
Stock, no par value, of the Company (the "Preferred Stock") and 71,775 shares of
Class A Common Stock, no par value, of the Company (the "Common Stock"); and
WHEREAS, the investment by the Purchasers will benefit the Company and
its shareholders; and
WHEREAS, it is a condition to the obligations of the Purchasers under
the Purchase Agreement that this Agreement be executed by the parties hereto,
and the parties are willing to execute this Agreement and to be bound by the
provisions hereof.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration receipt of which is hereby acknowledged, and in
consideration of the premises and the mutual covenants and obligations contained
in this Agreement, the parties hereto agree as follows:
1. This Agreement, together with the Registration Rights Agreement and
Stock Restriction Agreement entered into on even date herewith, amends and
restates in its entirety the 1994 Bull HN Agreement. Upon execution of this
Agreement, the 1994 Bull HN Agreement shall be superseded by the terms and
provisions hereof and shall have no further force nor effect.
2. In the event that the Company proposes to enter into a transaction,
or series of
<PAGE>
related transactions, at any time until the third anniversary of this Agreement,
pursuant to which any third party would otherwise acquire equity securities of
the Company that represent a majority of the combined voting power of the equity
securities of the Company immediately after the close of the transaction, or
series of related transactions, then immediately prior to the close of such
transaction, or series of related transactions, Bull HN, or at Bull HN's option,
its parent corporation, Compagnie des Machines Bull ("CMB") shall have the right
to purchase at the same price and on the same conditions as agreed to between
the Company and the third party, sufficient equity securities of the Company
such that immediately after the close of the transaction, or series of related
transactions, the equity securities held by Bull HN and/or CMB shall represent a
majority of the combined voting power of the equity securities of the Company.
The foregoing provision shall not apply if (i) the Company proposes to enter any
such transaction after the first anniversary of this Agreement and (ii) such
transaction is for an effective price per share of Common Stock greater than
***** (subject to appropriate adjustment to reflect stock splits, stock
dividends, and other similar actions after the date of this Agreement affecting
the number of issued and outstanding related shares of Common Stock). The
Company shall provide Bull HN with written notice and at least ten (10) days in
which to exercise its rights described above prior to the close of such
transaction. This right shall expire on the earlier to occur of (i) the close of
a transaction, or series of transactions, in which a third party acquires
equity securities of the Company, at an effective price per share of Common
Stock greater than ***** (subject to appropriate adjustment to reflect stock
splits, stock dividends, and other similar actions after the date of this
Agreement affecting the number of issued and outstanding shares of Common
Stock), that represent a majority of the combined voting power of the equity
securities of the Company immediately after the close of the transaction
provided that the Company has given notice to Bull HN as set forth above, (ii)
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 (iii) three years from the date of this Agreement.
3. In the event that any person or entity with a substantial part of
its business activity directly competitive with that of Bull HN, CMB or an
affiliate of CMB, shall acquire either (i) all or substantially all of the
assets of the Company or (ii) equity securities of the Company that represent a
majority of the combined voting power of the equity securities of the Company
immediately after the close of the transaction, or series of related
transactions, the Company shall, upon receipt of a written request by Bull HN
delivered to the Company within six months after such acquisition, use its best
efforts to assign and transfer all of its rights and obligations under that
certain Master Software and Hardware Services Agreement between the Company and
Bull HN dated as of February 3, 1992, as amended (the "Software Agreement") to a
third party acceptable to Bull HN in its discretion, taking into account the
technical, strategic and economic viability of such third party and the possible
need for
- 2 -
<PAGE>
additional security to insure the ability of such third party to perform under
the Software Agreement. In addition, the Company shall use its best efforts to
assure that personnel devoted to maintain any proprietary source code of Bull HN
under the Software Agreement are transferred to such third party without cost to
Bull HN. In the event that Bull HN requests such transfer, the Company and Bull
HN agree to act in good faith in order to effect such transfer so as to minimize
the disruption of either party's business resulting from such transfer. The
Company shall indemnify Bull HN for any claims Bull HN may have under the
Software Agreement against such third party as a result of such third party's
failure to perform the Software Agreement as in effect on the date of such
assignment as it relates to maintenance of the GCOS 6 and HVX systems and
applications software and related hardware and software. The obligations of the
Company under this paragraph shall terminate on the earlier of (i) five years
from the date of this Agreement, or (ii) 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.
4. The Company and Bull HN agree that Section 11.1.1 of the 1992 Bull
HN Stock Purchase Agreement is hereby amended to replace the reference to "up to
40,000 shares" in subclause (iv) with "from and after March 15, 1996, up to
2,161,025 shares (which number reflects all stock splits and dividends through
March 15, 1996 and shall be appropriately adjusted to reflect stock splits,
stock dividends and other similar actions thereafter affecting the number of
issued and outstanding shares of Class A Common Stock)".
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PERITUS SOFTWARE SERVICES, INC.
By: /s/ Dominic K. Chan
-----------------------------
Title:
-----------------------------
[Corporate Seal]
Attest:
/s/ Allen K. Deary
- -------------------------
Clerk
BULL HN INFORMATION SYSTEMS INC.
By: illegible
-------------------------
Title:
-------------------------
- 4 -
<PAGE>
EXHIBIT 10.8
------------
PERITUS SOFTWARE SERVICES, INC.
Note and Warrant Purchase Agreement
Dated as of May 30, 1995
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
Note and Warrant Purchase Agreement
-----------------------------------
Dated as of May 30, 1995
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I................................................................... 1
PURCHASE. SALE AND TERMS OF NOTES AND WARRANTS............................. 1
1.01. The Notes......................................................... 1
1.02. The Warrants...................................................... 1
1.03. Purchase and Sale of Notes and Warrants........................... 1
(a) The Closing.................................................. 1
(b) Allocation of Purchase Price................................. 2
(c) Use of Proceeds.............................................. 2
1.04. Payments and Endorsements......................................... 2
1.05. Redemptions....................................................... 2
(a) Required Redemptions......................................... 2
(b) Optional Redemptions With Premium............................ 2
(c) Notice of Redemptions; Pro rata Redemptions.................. 3
1.06. Payment on Non-Business Days...................................... 3
1.07. Registration, etc................................................. 3
1.08. Transfer and Exchange of Notes.................................... 4
1.09. Replacement of Notes.............................................. 4
1.10. Subordination..................................................... 4
(a) Payment of Senior Debt....................................... 5
(b) No Payment on Notes Under Certain Conditions................. 5
(c) Payments Held in Trust....................................... 5
(d) Subrogation.................................................. 6
(e) Scope of Section............................................. 6
(f) Survival of Rights........................................... 6
(g) Amendment or Waiver.......................................... 6
(h) Senior Debt Defined.......................................... 7
1.11. Representations by the Purchaser.................................. 7
1.12. Disclosure of Information by the Purchaser........................ 7
ARTICLE II.................................................................. 8
CONDITIONS TO PURCHASER'S OBLIGATION........................................ 8
2.01. Representations and Warranties.................................... 8
2.02. Documentation at Closing.......................................... 8
ARTICLE III................................................................. 9
REPRESENTATIONS AND WARRANTIES.............................................. 9
3.01. Organization and Standing......................................... 9
3.02. Corporate Action.................................................. 9
3.03. Governmental Approvals............................................ 10
3.04. Litigation........................................................ 10
3.05. Compliance with Other Instruments................................. 10
3.06. Federal Reserve Regulations....................................... 10
3.07. Title to Assets, Patents.......................................... 11
3.08. Financial Information............................................. 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.09. Taxes............................................................ 11
3.10. ERISA............................................................ 12
3.11. Transactions with Affiliates..................................... 12
3.12. Assumptions or Guaranties of Indebtedness of Other Persons....... 12
3.13. Investments in Other Persons..................................... 12
3.14. Equal Employment Opportunity..................................... 12
3.15. Status of Notes and Warrants as Qualified Investments............ 13
3.16. Securities Act................................................... 13
3.17. Disclosure....................................................... 13
3.18. No Brokers or Finders............................................ 14
3.19. Other Agreements of Officers..................................... 14
3.20. Capitalization; Status of Capital Stock.......................... 14
3.21. Labor Relations.................................................. 14
3.22. Insurance........................................................ 15
3.23. Key Man Insurance................................................ 15
3.24. Books and Records................................................ 15
3.25. Foreign Corrupt Practices Act.................................... 15
3.26. Registration Rights.............................................. 15
ARTICLE IV................................................................. 15
COVENANTS OF THE COMPANY................................................... 15
4.01. Affirmative Covenants Other Than Reporting Requirements.......... 15
(a) Punctual Payment............................................ 15
(b) Payment of Taxes and Trade Debt............................. 16
(c) Maintenance of Insurance.................................... 16
(d) Preservation of Corporate Existence......................... 16
(e) Compliance with Laws........................................ 16
(f) Visitation Rights........................................... 16
(g) Keeping of Records and Books of Account..................... 17
(h) Maintenance of Properties, etc.............................. 17
(i) Compliance with ERISA....................................... 17
(j) Maintenance of Debt to Equity Ratio......................... 17
(k) Maintenance of Consolidated Tangible Net Worth.............. 17
(l) Maintenance of Profitability................................ 17
(m) Maintenance of Debt Service Coverage........................ 17
(n) Foreign Corrupt Practices Act............................... 18
(o) Equal Employment Opportunity................................ 18
(p) Status of Notes and Warrants as Qualified Investments....... 18
(q) Key Man Life Insurance...................................... 18
(r) Attendance at Board Meetings................................ 18
(s) Compensation................................................ 19
(t) Compliance with Security Agreement.......................... 19
(u) Right of Participation...................................... 19
4.02 Negative Covenants............................................... 20
(a) Liens....................................................... 20
(b) Indebtedness................................................ 21
(c) Lease Obligations........................................... 21
(d) Assumptions or Guaranties of Indebtedness of Other Persons.. 21
(e) Mergers, Sale of Assets, etc................................ 22
(f) Investments in Other Persons................................ 22
(g) Distributions............................................... 22
(h) Dealings with Affiliates.................................... 23
(i) Maintenance of Ownership of Subsidiaries.................... 23
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(j) Change in Nature of Business.................................. 23
4.03. Reporting Requirements............................................. 23
4.04. Termination of Certain Covenants................................... 25
ARTICLE V.................................................................... 25
REGISTRATION RIGHTS.......................................................... 25
5.01. "Piggy Back" Registration.......................................... 25
5.02. Required Registration.............................................. 26
5.03. Registration on Form S-3........................................... 26
5.04. Effectiveness...................................................... 26
5.05. Indemnification of Holder of Registrable Shares.................... 26
5.06. Indemnification of Company......................................... 27
5.07. Exchange Act Registration.......................................... 28
5.08. Damages............................................................ 29
5.09. Further Obligations of the Company................................. 29
5.10. Lock-Up Agreement.................................................. 30
5.11. Expenses........................................................... 30
5.12. Limitation on Required Registrations............................... 30
ARTICLE V-A.................................................................. 31
PUT OPTION IN LIEU OF REQUIRED REGISTRATION.................................. 31
5A.01. Put Option......................................................... 31
5A.02. Exercise of Put Option............................................. 31
5A.03. Fair Market Value and Valuation Date............................... 31
5A.04. Additional Payments Upon Merger, Etc............................... 32
ARTICLE VI................................................................... 33
EVENTS OF DEFAULT............................................................ 33
6.01. Events of Default.................................................. 33
6.02. Annulment of Defaults.............................................. 35
ARTICLE VII.................................................................. 35
DEFINITIONS AND ACCOUNTING TERMS............................................. 35
7.01. Certain Defined Terms.............................................. 35
7.02. Accounting Terms................................................... 38
ARTICLE VIII................................................................. 38
MISCELLANEOUS................................................................ 38
8.01. No Waiver; Cumulative Remedies..................................... 38
8.02. Amendments, Waivers and Consents................................... 39
8.03. Addresses for Notices, etc......................................... 39
8.04. Costs, Expenses and Taxes.......................................... 40
8.05. Binding Effect; Assignment......................................... 40
8.06. Survival of Representations and Warranties......................... 40
8.07. Prior Agreements................................................... 40
8.08. Severability....................................................... 40
8.09. Governing Law...................................................... 40
8.10. Headings........................................................... 40
8.11. Sealed Instrument.................................................. 41
8.12. Counterparts....................................................... 41
</TABLE>
(iii)
<PAGE>
EXHIBITS
1.01 Form of Secured Subordinated Notes
1.02 Form of Common Stock Purchase Warrants
2.02 (a) Form of Security Agreement
2.02 (c) Matters to be Covered by Opinion Letter
2.02 (f) Form of Voting Agreement
3.05 Schedule of Indebtedness
3.07 Schedule of Mortgages, Pledges, etc.
3.08 Financial Statements
3.11 Schedule of Transactions with Affiliates
3.15 Certificate Regarding "Qualified Investments"
3.20 Schedule of Capital Stock, Options and Other Rights
(iv)
<PAGE>
PERITUS SOFTWARE SERVICES, INC.
304 Concord Road
Billerica, Massachusetts 01821
As of May 30, 1995
Massachusetts Capital Resource Company
420 Boylston Street
Boston, Massachusetts 02116
Re: Secured Subordinated Notes due
2002 and Common Stock Purchase
Warrants
Gentlemen:
Peritus Software Services, Inc., a Massachusetts corporation (the
"Company"), hereby agrees with Massachusetts Capital Resource Company (the
"Purchaser") as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
1.01. The Notes. The Company has authorized the issuance and sale to the
---------
Purchaser of the Company's Secured Subordinated Notes, due June 30, 2002, in the
original principal amount of $1,000,000. The Secured Subordinated Notes shall
be substantially in the form set forth in Exhibit 1.01 hereto and are herein
------------
referred to individually as a "Note" and collectively as the "Notes", which
terms shall also include any notes delivered in exchange or replacement
therefor.
1.02. The Warrants. The Company has also authorized the issuance and sale
------------
to the Purchaser of the Company's Common Stock Purchase Warrants for the
purchase (subject to adjustment as provided therein) of 125,000 shares of the
Company's Common Stock. The Common Stock Purchase Warrants shall be
substantially in the form set forth in Exhibit 1.02 hereto and are herein
------------
referred to individually as a "Warrant" and collectively as the "Warrants",
which terms shall also include any warrants delivered in exchange or replacement
therefor.
1.03. Purchase and Sale of Notes and Warrants
---------------------------------------
(a) The Closing. The Company agrees to issue and sell to the
-----------
Purchaser, and, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, the Purchaser agrees to purchase, the
Notes and the Warrants for an aggregate purchase price of $1,000,000. Such
purchase and sale shall take place at a closing (the "Closing") to be held at
the office of Messrs. Testa, Hurwitz & Thibeault, Exchange Place, 53 State
Street, Boston, Massachusetts, on May 30, 1995 at 1:00 P.M., or on such other
date and at such time as may be mutually agreed upon. At the Closing
<PAGE>
the Company will initially issue one Note, payable to the order of the
Purchaser, in the principal amount of $1,000,000 and one Warrant, registered in
the name of the Purchaser, to purchase (subject to adjustment as provided
therein) 125,000 shares of the Company's Common Stock, against delivery to the
Company of a check or a receipt of a wire transfer, in the amount of $1,000,000,
in payment of the full purchase price for the Notes and Warrants.
(b) Allocation of Purchase Price. The Company and the Purchaser,
----------------------------
having adverse interests and as a result of arm's length bargaining, agree that
(i) neither the Purchaser nor any of its partners has rendered or has agreed to
render any services to the Company in connection with this Agreement or the
issuance of the Notes and Warrants; (ii) the Warrants are not being issued as
compensation; and (iii) for the purpose, and within the meaning, of Section
1273(c)(2) of the Internal Revenue Code of 1986, as amended, the issue price of
the Notes is $990,000. The Company and the Purchaser acknowledge that this
allocation is based on the relative fair market values of the Notes and
Warrants. The Company and the Purchaser recognize that this Agreement determines
the original issue discount to be taken into account by the Company and the
Purchaser for federal income tax purposes on the Notes and they agree to adhere
to this Agreement for such purposes.
(c) Use of Proceeds. The Company agrees to use the full proceeds
---------------
from the sale of the Notes and Warrants solely for working capital, acquisitions
and to repay its outstanding Small Business Administration loans and agrees that
full proceeds from the sale of the Notes and Warrants will be utilized for
purposes which increase or maintain equal opportunity employment in the
Commonwealth of Massachusetts.
1.04. Payments and Endorsements. Payments of principal, interest and
-------------------------
premium, if any, on the Notes, shall be made directly by check duly mailed or
delivered to the Purchaser at its address referred to in Section 8.03 hereof,
without any presentment or notation of payment, except that prior to any
transfer of any Note, the holder of record shall endorse on such Note a record
of the date to which interest has been paid and all payments made on account of
principal of such Note.
1.05. Redemptions.
-----------
(a) Required Redemptions. Beginning on and with September 30, 1998,
-------- -----------
and on the last day of December, March, June and September in each year
thereafter through and including June 30, 2002, the Company will redeem, without
premium, $62,500 in principal amount of the Notes, or such lesser amount as may
be then outstanding, together with all accrued and unpaid interest then due on
the amount so redeemed. On the stated or accelerated maturity of the Notes, the
Company will pay the principal amount of the Notes then outstanding together
with all accrued and unpaid interest then due thereon. No optional redemption of
less than all of the Notes shall affect the obligation of the Company to make
the redemptions required by this subsection.
(b) Optional Redemptions With Premium. The Company may at any time
---------------------------------
on or after July 1, 1996, (no optional redemption being
-2-
<PAGE>
permitted prior to said date) redeem the Notes in whole or in part (in integral
multiples of $10,000) together with interest due on the amount so redeemed
through the date of redemption, and a premium equal to the percentage of the
principal amount of the Notes redeemed under this subsection applicable to the
twelve month period in which such redemption is made, as follows:
<TABLE>
<CAPTION>
12-month period
ending Premium
--------------- -------
<S> <C>
June 30, 1997 10%
June 30, 1998 8%
June 30, 1999 6%
June 30, 2000 4%
June 30, 2001 2%
June 30, 2002 0%
</TABLE>
(c) Notice of Redemptions; Pro rata Redemptions. Notice of any
-------------------------------------------
optional redemptions pursuant to subsection 1.05(b) shall be given to all
registered holders of the Notes at least ten (10) business days prior to the
date of such redemption. Each redemption of Notes pursuant to subsections
1.05(a) or (b) shall be made so that the Notes then held by each holder shall be
redeemed in a principal amount which shall bear the same ratio to the total
principal amount of Notes being redeemed as the principal amount of Notes then
held by such holder bears to the aggregate principal amount of the Notes then
outstanding.
1.06. Payment on Non-Business Days. Whenever any payment to be made shall
----------------------------
be due on a Saturday, Sunday or a public holiday under the laws of the
Commonwealth of Massachusetts, such payment may be made on the next succeeding
business day, and such extension of time shall in such case be included in the
computation of payment of interest due.
1.07. Registration, etc. The Company shall maintain at its principal
-----------------
office a register of the Notes and shall record therein the names and addresses
of the registered holders of the Notes, the address to which notices are to be
sent and the address to which payments are to be made as designated by the
registered holder if other than the address of the holder, and the particulars
of all transfers, exchanges and replacements of Notes. No transfer of a Note
shall be valid unless made on such register for the registered holder or his
executors or administrators or his or their duly appointed attorney, upon
surrender therefor for exchange as hereinafter provided, accompanied by an
instrument in writing, in form and execution reasonably satisfactory to the
Company. Each Note issued hereunder, whether originally or upon transfer,
exchange or replacement of a Note or Notes, shall be registered on the date of
execution thereof by the Company and shall be dated the date to which interest
has been paid on such Notes or Note. The registered holder of a Note shall be
that Person in whose name the Note has been so registered by the Company. A
registered holder shall be deemed the owner of a Note for all purposes of this
Agreement and, subject to the provisions hereof, shall be entitled to the
principal, premium, if any, and interest evidenced by such Note free from all
equities or rights of setoff or counterclaim between the Company and the
-3-
<PAGE>
transferor of such registered holder or any previous registered holder of such
Note.
1.08. Transfer and Exchange of Notes. The registered holder of any Note
------------------------------
or Notes may, prior to maturity or prepayment thereof, surrender such Note or
Notes at the principal office of the Company for transfer or exchange. Within a
reasonable time after notice to the Company from a registered holder of its
intention to make such exchange and without expense (other than transfer taxes,
if any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes, in such denominations as requested by the registered
holder, for the same aggregate principal amount as the unpaid principal amount
of the Note or Notes so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same terms and
conditions as the Note or Notes so surrendered. Each new Note shall be made
payable to such Person or Persons, or registered assigns, as the registered
holder of such surrendered Note or Notes may designate, and such transfer or
exchange shall be made in such a manner that no gain or loss of principal or
interest shall result therefrom.
1.09. Replacement of Notes. Upon receipt of evidence satisfactory to the
--------------------
Company of the loss, theft, destruction or mutilation of any Note and, if
requested in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor and amount and
dated the date to which interest has been paid, in lieu of such lost, stolen,
destroyed or mutilated Note; provided, however, if any Note of which
-------- -------
Massachusetts Capital Resource Company, its nominee, or any of its partners is
the registered holder is lost, stolen or destroyed, the affidavit of the
President, Treasurer or any Assistant Treasurer of the registered holder setting
forth the circumstances with respect to such loss, theft or destruction shall be
accepted as satisfactory evidence thereof, and no indemnification bond or other
security shall be required as a condition to the execution and delivery by the
Company of a new Note in replacement of such lost, stolen or destroyed Note
other than the registered holder's written agreement to indemnify the Company.
1.10. Subordination. The Company, for itself, its successors and assigns,
-------------
covenants and agrees, and the Purchaser and each successor holder of the Notes
by his or its acceptance thereof, likewise covenants and agrees, that
notwithstanding any other provision of this Agreement or the Notes, the payment
of the principal of and interest on each and all of the Notes shall be
subordinated in right of payment, to the extent and in the manner hereinafter
set forth, to the prior payment in full of all Senior Debt (as hereinafter
defined) at any time outstanding. The provisions of this Section 1.10 shall
constitute a continuing representation to all Persons who, in reliance upon such
provisions, become the holders of or continue to hold Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are hereby made obligees hereunder the same as if their names were
written herein as such, and they or any of them may proceed to enforce such
provisions against the Company or against the
-4-
<PAGE>
holder of any Note without the necessity of joining the Company as a party.
(a) Payment of Senior Debt. In the event of any insolvency or
----------------------
bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, relative to the Company or to
its property, or, in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company or distribution or marshaling of
its assets or any composition with creditors of the Company, whether or not
involving insolvency or bankruptcy, then and in any such event all Senior Debt
shall be paid in full before any payment or distribution of any character,
whether in cash, securities or other property, shall be made on account of the
Notes; and any such payment or distribution made on account of the Notes, except
securities which are subordinated and junior in right of payment to the payment
of all Senior Debt then outstanding in terms of substantially the same tenor as
this Section 1.10, which would, but for the provisions hereof, be payable or
deliverable in respect of the Notes shall be paid or delivered directly to the
holders of Senior Debt (or their duly authorized representatives), in the
proportions in which they hold the same, until all Senior Debt shall have been
paid in full, and every holder of the Notes by becoming a holder thereof shall
have designated and appointed the holder or holders of Senior Debt (and their
duly authorized representatives) as his or its agents and attorney-in-fact to
demand, sue for, collect and receive such Senior Debt holder's ratable share of
all such payments and distributions and to file any necessary proof of claim
therefor and to take all such other action in the name of the holders of the
Notes or otherwise, as such Senior Debt holders (or their authorized
representatives) may determine to be necessary or appropriate for the
enforcement of this Section 1.10. The Purchaser and each successor holder of the
Notes by its or his acceptance thereof agrees to execute, at the request of the
Company, a separate agreement with any holder of Senior Debt on the terms set
forth in this Section 1.10, and to take all such other action as such holder or
such holder's representative may request in order to enable such holder to
enforce all claims upon or in respect of such holder's ratable share of the
Notes.
(b) No Payment on Notes Under Certain Conditions. In the event that
--------------------------------------------
any default occurs in the payment of the principal of or interest on any Senior
Debt (whether as a result of the acceleration thereof by the holders of such
Senior Debt or otherwise) and during the continuance of such default for a
period up to ninety (90) days and thereafter if judicial proceedings shall have
been instituted with respect to such defaulted payment, or (if a shorter period)
until such payment has been made or such default has been cured or waived in
writing by such holder of Senior Debt then and during the continuance of such
event no payment of principal or interest on the Notes shall be made by the
Company or accepted by any holder of the Notes who has received notice from the
Company or from a holder of Senior Debt of such events.
(c) Payments Held in Trust. In case any payment or distribution
----------------------
shall be paid or delivered to any holder of the Notes before all Senior Debt
shall have been paid in full, despite or in violation or contravention of the
terms of this subordination, such
-5-
<PAGE>
payment or distribution shall be held in trust for and paid and delivered
ratably to the holders of Senior Debt (or their duly authorized
representatives), until all Senior Debt shall have been paid in full.
(d) Subrogation. Subject to the payment in full of all Senior Debt
-----------
and until the Notes shall be paid in full, the holders of the Notes shall be
subrogated to the rights of the holders of Senior Debt (to the extent of
payments or distributions previously made to such holders of Senior Debt
pursuant to the provisions of subsections (a) and (c) of this Section 1.10) to
receive payments or distributions of assets of the Company applicable to the
Senior Debt. No such payments or distributions applicable to the Senior Debt
shall, as between the Company and its creditors, other than the holders of
Senior Debt and the holders of the Notes, be deemed to be a payment by the
Company to or on account of the Notes; and for the purposes of such subrogation,
no payments or distributions to the holders of Senior Debt to which the holders
of the Notes would be entitled except for the provisions of this Section 1.10
shall, as between the Company and its creditors, other than the holders of
Senior Debt and the holders of the Notes, be deemed to be a payment by the
Company to or on account of the Senior Debt.
(e) Scope of Section. The provisions of this Section 1.10 are
----------------
intended solely for the purpose of defining the relative rights of the holders
of the Notes, on the one hand, and the holders of the Senior Debt, on the other
hand. Nothing contained in this Section 1.10 or elsewhere in this Agreement or
the Notes is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Debt, and the holders of the Notes, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with the terms thereof, or to
affect the relative rights of the holders of the Notes and creditors of the
Company other than the holders of the Senior Debt, nor shall anything herein or
therein prevent the holder of any Note from accepting any payment with respect
to such Note or exercising all remedies otherwise permitted by applicable law
upon default under such Note, subject to the rights, if any, under this Section
1.10 of the holders of Senior Debt in respect of cash, property or securities of
the Company received by the holders of the Notes.
(f) Survival of Rights. The right of any present or future holder of
------------------
Senior Debt to enforce subordination of the Notes pursuant to the provisions of
this Section 1.10 shall not at any time be prejudiced or impaired by any act or
failure to act on the part of the Company or any such holder of Senior Debt,
including, without limitation, any forbearance, waiver, consent, compromise,
amendment, extension, renewal, or taking or release of security of or in respect
of any Senior Debt or by noncompliance by the Company with the terms of such
subordination regardless of any knowledge thereof such holder may have or
otherwise be charged with.
(g) Amendment or Waiver. The provisions of this Section 1.10 may not
-------------------
be amended or waived in any manner without the consent of the holders of all
then existing Senior Debt.
-6-
<PAGE>
(h) Senior Debt Defined. The term "Senior Debt" shall mean (i) all
-------------------
Indebtedness of the Company for money borrowed from banks or other institutional
lenders, including any extension or renewals thereof, whether outstanding on the
date hereof or thereafter created or incurred, which is not by its terms
subordinate and junior to or on a parity with the Notes and which is permitted
hereby at the time it is created or incurred, and (ii) all guaranties by the
Company which are not by their terms subordinate and junior to or on a parity
with the Notes and which are permitted hereby at the time they are made, of
Indebtedness of any Subsidiary if such Indebtedness would have been Senior Debt
pursuant to the provisions of clause (i) of this sentence had it been
Indebtedness of the Company. In making any loans which are (or the guaranties of
which are) intended to be Senior Debt, the lenders or purchasers shall be
entitled to rely as to the fact that such Indebtedness or guaranty is permitted
hereby upon a certificate by the Company's chief financial officer purporting to
show such Indebtedness or guaranty will not result in the Company's failure to
comply with the provisions of Article IV hereof as of the date of the loan or
guarantee.
1.11. Representations by the Purchaser. The Purchaser represents that it
--------------------------------
is its present intention to acquire the Notes and Warrants for its own account
and that the Notes and Warrants are being and will be acquired for the purpose
of investment and not with a view to distribution or resale thereof; subject,
-------
nevertheless, to the condition that the disposition of the property of the
- ------------
Purchaser shall at all times be within its control. The acquisition by the
Purchaser of the Notes and Warrants shall constitute a confirmation of this
representation.
1.12. Disclosure of Information by the Purchaser. The Company understands
------------------------------------------
that the Purchaser 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, the Purchaser, 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 the Purchaser 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 the
Purchaser to all such persons as the Purchaser in good faith deems
-7-
<PAGE>
necessary or appropriate in order to fulfill its obligations under the Capital
Resource Company Act.
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATION
The obligation of the Purchaser to purchase and pay for the Notes and
Warrants at the Closing is subject to the following conditions:
2.01. Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in Article III hereof shall be true on the
date of the Closing.
2.02. Documentation at Closing. The Purchaser shall have received prior
------------------------
to or at the Closing all of the following, each in form and substance
satisfactory to the Purchaser and its special counsel:
(a) A Security Agreement, in the form attached as Exhibit 2.02(a),
---------------
(the "Security Agreement"), and all related financing statements and other
similar instruments and documents, shall have been executed and delivered to the
Purchaser by a duly authorized officer of the Company.
(b) A certified copy of all charter documents of the Company; a
certified copy of the resolutions of the Board of Directors and, to the extent
required, the stockholders of the Company evidencing approval of this Agreement,
the Notes, the Warrants, the Security Agreement, and other matters contemplated
hereby; a certified copy of the By-laws of the Company; and certified copies of
all documents evidencing other necessary corporate or other action and
governmental approvals, if any, with respect to this Agreement, the Notes, the
Warrants and the Security Agreement.
(c) A favorable opinion of Messrs. Hale and Dorr, counsel for the
Company, as to matters set forth in Exhibit 2.02(b), and as to such other
---------------
matters as the Purchaser, or its special counsel, may reasonably request.
(d) A certificate of the Clerk or an Assistant Clerk of the Company
which shall certify the names of the officers of the Company, authorized to sign
this Agreement, the Notes, the Warrants, the Security Agreement and the other
documents or certificates to be delivered pursuant to this Agreement or the
Security Agreement by the Company, or any of its officers, together with the
true signatures of such officers. The Purchaser may conclusively rely on such
certificates until it shall receive a further certificate of the Clerk or an
Assistant Clerk of the Company canceling or amending the prior certificate and
submitting the signatures of the officers named in such further certificate.
(e) A certificate from a duly authorized officer of the Company
stating that the representations and warranties of the Company contained in
Article III hereof and otherwise made by the Company in writing in connection
with the transactions contemplated
-8-
<PAGE>
hereby are true and correct and that no condition or event has occurred or is
continuing or will result from execution and delivery of this Agreement, the
Notes, the Warrants or the Security Agreement which constitute an Event of
Default or would constitute an Event of Default but for the requirement that
notice be given or time elapse or both.
(f) A Voting Agreement, substantially in the form of Exhibit 2.02(f)
---------------
hereto, shall have been entered into among the Company, the Purchaser and
Dominic K. Chan.
(g) A certificate, in the form attached as Exhibit 3.15 hereto, shall
------------
have been executed and delivered by a duly authorized officer of the Company.
(h) Payment for the costs, expenses, taxes and filing fees identified
in Section 8.04 as to which the Purchaser gives the Company notice prior to the
Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants as follows:
3.01. Organization and Standing. The Company is a duly organized and
-------------------------
validly existing corporation in good standing under the laws of the jurisdiction
in which it was organized and has all requisite corporate power and authority
for the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted. The Company is
duly licensed or qualified and in good standing as a foreign corporation
authorized to do business in all jurisdictions wherein the character of the
property owned or leased, or the nature of the activities conducted, by it makes
such licensing or qualification necessary and where the failure to be so
licensed or qualified would have a material adverse effect on the Company. The
Company has no Subsidiaries.
3.02. Corporate Action. The Company has all necessary corporate power and
----------------
has taken all corporate action required to make all the provisions of this
Agreement, the Notes, the Warrants, the Security Agreement and any other
agreements and instruments executed in connection herewith and therewith the
valid and enforceable obligations they purport to be, subject, however, to
bankruptcy, insolvency, reorganization and other similar laws of general
application affecting the rights and remedies of creditors. Sufficient shares
of authorized but unissued Common Stock of the Company have been reserved by
appropriate corporate action in connection with the prospective exercise of the
Warrants. Neither the issuance of the Notes or Warrants, nor the issuance of
shares of Common Stock upon the exercise of the Warrants, is subject to
preemptive or other similar statutory or contractual rights and will not
conflict with any provisions of any agreement or instrument to which the Company
is a party or by which it is bound.
-9-
<PAGE>
3.03. Governmental Approvals. No authorization, consent, approval,
----------------------
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the offer,
issuance, sale, execution or delivery by the Company of, or for the performance
by it of its obligations under, this Agreement, the Notes, the Warrants or the
Security Agreement.
3.04. Litigation. There is no litigation or governmental proceeding or
----------
investigation pending or, to the best of the knowledge of the Company,
threatened against the Company affecting any of its properties or assets, or
against any officer, key employee or principal stockholder of the Company 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, the Notes, the Warrants, the
Security Agreement or any action taken or to be taken pursuant hereto or
thereto, nor, to the best of the knowledge of the Company, has there occurred
any event or does there exist any condition on the basis of which any
litigation, proceeding or investigation might properly be instituted. Neither
the Company, nor, to the best of the knowledge of the Company, any officer, key
employee or principal stockholder of the Company is in default with respect to
any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency affecting the Company.
3.05. Compliance with Other Instruments. The Company is in compliance in
---------------------------------
all respects with the terms and provisions of this Agreement and of its charter
and by-laws and in all material respects with the terms and provisions of the
mortgages, indentures, leases, agreements and other instruments and of all
judgments, decrees, governmental orders, statutes, rules and regulations by
which it is bound or to which its properties or assets are subject. There is no
term or provision in any of the foregoing documents and instruments which
materially adversely affects the business, assets or financial condition of the
Company. Neither the execution and delivery of this Agreement, the Notes, the
Warrants or the Security Agreement, nor the consummation of any transactions
contemplated hereby or thereby has constituted or resulted in or will constitute
or result in a default or violation of any term or provision in any of the
foregoing documents or instruments. A schedule of Indebtedness of the Company
(including lease obligations required to be capitalized in accordance with
applicable Statements of Financial Accounting Standards) is attached as Exhibit
-------
3.05.
- ----
3.06. Federal Reserve Regulations. The Company is not engaged in the
---------------------------
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Notes or Warrants
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.
-10-
<PAGE>
3.07. Title to Assets, Patents. Except as is set forth in Exhibit 3.07,
------------------------ ------------
the Company has good and clear record and marketable title in fee to such of its
fixed assets as are real property, and good and merchantable title to all of its
other assets, now carried on its books including those reflected in the most
recent balance sheet of the Company which forms a part of Exhibit 3.08 attached
------------
hereto, or acquired since the date of such balance sheet (except personal
property disposed of since said date in the ordinary course of business) free of
any mortgages, pledges, charges, liens, security interests or other
encumbrances. The Company enjoys peaceful and undisturbed possession under all
leases under which it is operating, and all said leases are valid and subsisting
and in full force and effect. The Company owns or has a valid right to use the
patents, patent rights, licenses, permits, trade secrets, trademarks, trademark
rights, trade names or trade name rights or franchises, copyrights, inventions
and intellectual property rights being used to conduct its business as now
operated and as now proposed to be operated; and the conduct of its business as
now operated and as now proposed to be operated does not and will not conflict
with valid patents, patent rights, licenses, permits, trade secrets, trademarks,
trademark rights, trade names or trade name rights or franchises, copyrights,
inventions and intellectual property rights of others. The Company has no
obligation to compensate any Person for the use of any such patents or such
rights nor has the Company granted to any Person any license or other rights to
use in any manner any of such patents or such rights of the Company.
3.08. Financial Information. The financial statements of the Company
---------------------
attached as Exhibit 3.08 present fairly the financial position of the Company as
------------
at the dates thereof and its results of operations for the periods covered
thereby and have been prepared in accordance with generally accepted accounting
principles consistently applied. The financial statements so attached are: (i)
for the year ended December 31, 1993, compiled by Lopez, Chaff & Wiesman
Associates and (ii) for the year ended December 31, 1994 and for the three-month
period ended March 31, 1995, being unaudited and subject to year-end adjustments
consisting of normal recurring items which will not be material in the
aggregate. The Company has no liability contingent or otherwise not disclosed in
the aforesaid financial statements or in the notes thereto that could, together
with all such other liabilities, materially affect the financial condition of
the Company, nor does the Company have any reasonable grounds to know of any
such liability. Since the date of said certified financial statements, (i) there
has been no adverse change in the business, assets or condition, financial or
otherwise, operations or prospects, of the Company; (ii) neither the business,
condition, operations or prospects of the Company nor any of its properties or
assets has been adversely affected as a result of any legislative or regulatory
change, any revocation or change in any franchise, license or right to do
business, or any other event or occurrence, whether or not insured against; and
(iii) the Company has not entered into any material transaction or made any
distribution on its capital stock.
3.09. Taxes. The Company has accurately prepared and timely filed all
-----
federal, state and other tax returns required by law to be filed by it, and all
taxes shown to be due and all additional assessments have been paid or provision
made therefor. The Company knows of no additional assessments or adjustments
pending or
-11-
<PAGE>
threatened against the Company for any period, nor of any basis for any such
assessment or adjustment.
3.10. ERISA. No employee benefit plan established or maintained, or to
-----
which contributions have been made, by the Company, which is subject to part 3
of Subtitle B of Title I of The Employee Retirement Income Security Act of 1974,
as amended ("ERISA") had an accumulated funding deficiency (as such term is
defined in Section 302 of ERISA) as of the last day of the most recent fiscal
year of such plan ended prior to the date hereof, and no material liability to
the Pension Benefit Guaranty Corporation has been incurred with respect to any
such plan by the Company.
3.11. Transactions with Affiliates. Except as is set forth in Exhibit
---------------------------- -------
3.11, there are no loans, leases, royalty agreements or other continuing
- ----
transactions between the Company and any Person owning five percent (5%) or more
of any class of capital stock of the Company or other entity controlled by such
stockholder or a member of such stockholder's family.
3.12. Assumptions or Guaranties of Indebtedness of Other Persons. The
----------------------------------------------------------
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (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) any Indebtedness of any other Person.
3.13. Investments in Other Persons. The Company has not made any loan or
----------------------------
advance to any Person which is outstanding on the date of this Agreement, nor is
the Company obligated or committed to make any such loan or advance, nor does
the Company own any capital stock or assets comprising the business of,
obligations of, or any interest in, any Person.
3.14. 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)105A 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
-12-
<PAGE>
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 investigations by, such commissions or governmental units.
3.15. Status of Notes and Warrants as Qualified Investments. The Company
-----------------------------------------------------
has duly authorized the execution and delivery to the Purchaser on behalf of the
Company of the certificate attached as Exhibit 3.15 hereto, setting forth such
------------
statements, information and related data as are necessary to permit the
Purchaser to determine and demonstrate that the Notes and Warrants issued
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 Notes and Warrants 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.
3.16. Securities Act. Neither the Company nor anyone acting on its behalf
--------------
has offered any of the Notes, Warrants or similar securities, or solicited any
offers to purchase or made any attempt by preliminary conversation or
negotiations to dispose of the Notes, Warrants or similar securities, to any
Person other than the Purchaser or the institutions described in Exhibit 3.15.
------------
Neither the Company nor anyone acting on its behalf has offered or will offer to
sell the Notes, Warrants or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Notes and Warrants under the registration provisions of the
Securities Act.
3.17. Disclosure. Neither this Agreement, the Security Agreement, the
----------
financial statements incorporated herein as Exhibit 3.08, the Certificate set
------------
forth as Exhibit 3.15 hereof, nor any other agreement, document, certificate or
------------
written statement furnished to the Purchaser or its special counsel by or on
behalf of the Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading. There is no fact within the special knowledge of the Company or any
of its executive officers which has not been disclosed herein or in writing by
them to the Purchaser and which materially adversely affects, or in the future
in their opinion may, insofar as they can now foresee, materially adversely
affect the business, properties, assets or condition, financial or otherwise, of
the Company. Without limiting the foregoing, the Company has no knowledge or
belief that there exists,
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<PAGE>
or there is pending or planned, any patent, invention, device, application or
principle or any statute, rule, law, regulation, standard or code which would
materially adversely affect the condition, financial or otherwise, or the
operations of the Company.
3.18. No Brokers or Finders. No Person has or will have, as a result of
---------------------
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or any agent
of the Company.
3.19. Other Agreements of Officers. To the best of the knowledge of the
----------------------------
Company, no officer or key employee of the Company is a party to or bound by any
agreement, contract or commitment, or subject to any restrictions, particularly
but without limitation in connection with any previous employment of any such
person, which materially and adversely affects, or in the future may (so far as
the Company can reasonably foresee) materially and adversely affect, the
business or operations of the Company or the right of any such person to
participate in the affairs of the Company. To the best of the knowledge of the
Company, no officer or key employee has any present intention of terminating his
employment with the Company and the Company has no present intention of
terminating any such agreement.
3.20. Capitalization; Status of Capital Stock. The Company has a total
---------------------------------------
authorized capitalization consisting of: (i) 2,900,000 shares of Class A Voting
Common Stock, of which 2,006,280 shares are issued and outstanding and (ii)
40,000 shares of Class B Non-Voting Common Stock, no par value, of which 1,750
shares are issued and outstanding. A complete list of the outstanding capital
stock of the Company and the names in which such capital stock is registered is
set forth in Exhibit 3.20 hereto. All the outstanding shares of capital stock
------------
of the Company have been duly authorized, are validly issued and are fully paid
and nonassessable. The shares of Common Stock issuable upon exercise of the
Warrants, when so issued, will be duly authorized, validly issued and fully paid
and nonassessable. Except as otherwise indicated on Exhibit 3.20, there are no
------------
options, warrants or rights to purchase shares of capital stock or other
securities of the Company authorized, issued or outstanding, nor is the Company
obligated in any other manner to issue shares of its capital stock or other
securities. There are no restrictions on the transfer of shares of capital
stock of the Company other than those imposed by relevant state and federal
securities laws. No holder of any security of the Company is entitled to
preemptive or similar statutory or contractual rights, either arising pursuant
to any agreement or instrument to which the Company is a party, or which are
otherwise binding upon the Company. Neither the issuance of the Notes or the
Warrants nor the shares of Common Stock issued upon exercise of the Warrants
will result in an adjustment under the antidilution or exercise rights of any
holders of any outstanding shares of capital stock options, warrants or other
rights to acquire any securities of the Company. The offer and sale of all
shares of capital stock and other securities of the Company issued before the
Closing complied with or were exempt from all federal and state securities laws.
3.21. Labor Relations. To the best of the knowledge of the Company, no
---------------
labor union or any representative thereof has made any
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<PAGE>
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 there is no reason to believe that any labor difficulties
will arise in the foreseeable future.
3.22. Insurance. The Company carries insurance covering its properties
---------
and business adequate and customary for the type and scope of the properties and
business, but in any event in amounts sufficient to prevent the Company from
becoming a co-insurer.
3.23. Key Man Insurance. The Company carries a life insurance policy from
-----------------
a financially sound and reputable insurance company on the life of Dominic K.
Chan, in the face amount of $1,200,000, with the proceeds thereof being payable
to the Company.
3.24. Books and Records. The books of account, ledgers, order books,
-----------------
records and documents of the Company accurately and completely reflect all
material information relating to the business of the Company, the nature,
acquisition, maintenance, location and collection of the assets of the Company,
and the nature of all transactions giving rise to the obligations or accounts
receivable of the Company.
3.25. 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 which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, or any rules or regulations promulgated
thereunder.
3.26. Registration Rights. Other than the Purchaser pursuant to the terms
-------------------
of Article V hereof, no Person has demand or other rights to cause the Company
to file any registration statement under the Securities Act relating to any
securities of the Company or any right to participate in any such registration
statement.
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. Affirmative Covenants Other Than Reporting Requirements. Without
-------------------------------------------------------
limiting any other covenants and provisions hereof, the Company covenants and
agrees that, as long as any of the Notes or Warrants are outstanding, it will
perform and observe the following covenants and provisions and will cause each
Subsidiary to perform and observe such of the following covenants and provisions
as are applicable to such Subsidiary:
(a) Punctual Payment. Pay the principal of, premium, if any, and
----------------
interest on each of the Notes at the times and place and in the manner provided
in the Notes and herein.
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<PAGE>
(b) Payment of Taxes and Trade Debt. Pay and discharge, and cause
-------------------------------
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of the Company or any Subsidiary, provided that neither the
Company nor the Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the Company or Subsidiary concerned shall have set aside on its
books adequate reserves with respect thereto. Pay and cause each Subsidiary to
pay, when due, or in conformity with customary trade terms, all lease
obligations, all trade debt, and all other Indebtedness incident to the
operations of the Company or its Subsidiaries, except such as are being
contested in good faith and by appropriate proceedings if the Company or
Subsidiary concerned shall have set aside on its books adequate reserves with
respect thereto.
(c) Maintenance of Insurance. Maintain, and cause each Subsidiary to
------------------------
maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Company or such Subsidiary operates, but in any
event in amounts sufficient to prevent the Company or such Subsidiary from
becoming a co-insurer.
(d) Preservation of Corporate Existence. Preserve and maintain, and
-----------------------------------
cause each Subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties; provided, however, that nothing herein contained shall
-------- -------
prevent any merger, consolidation or transfer of assets permitted by subsection
4.02(e). Preserve and maintain, and cause each Subsidiary to preserve and
maintain, all licenses and other rights to use patents, processes, licenses,
trademarks, trade names, inventions, intellectual property rights or copyrights
owned or possessed by it and necessary to the conduct of its business.
(e) Compliance with Laws. Comply, and cause each Subsidiary to
--------------------
comply, with all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which could materially adversely
affect its business or condition, financial or other.
(f) Visitation Rights. At any reasonable time and from time to time,
-----------------
permit the Purchaser or any agents or representatives thereof, to examine and
make copies of and extracts from the records and books of account of, and visit
and inspect the properties of, the Company and any Subsidiary, and to discuss
the affairs, finances and accounts of the Company and any Subsidiary with any of
their officers or directors and independent accountants. Except for disclosures
(i) pursuant to the Capital Resource Company Act as provided for in Section
1.12, (ii) to partners and advisors in connection with the
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<PAGE>
Purchaser's valuation process and (iii) in connection with the enforcement of
its rights under this Agreement, the Notes, the Warrants and the Security
Agreement, the Purchaser will use its best efforts to hold in confidence any
proprietary or confidential information which it receives from the Company
pursuant to this subsection 4.01(f).
(g) Keeping of Records and Books of Account. 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.
(h) Maintenance of Properties, etc. Maintain and preserve, and cause
------------------------------
each Subsidiary to maintain and preserve, all of its properties, necessary or
useful in the proper conduct of its business, in good repair, working order and
condition, ordinary wear and tear excepted.
(i) Compliance with ERISA. Comply, and cause each Subsidiary to
---------------------
comply, with all minimum funding requirements applicable to any pension or other
employee benefit or employee contribution plans which are subject to ERISA or to
the Internal Revenue Code of 1986, as amended (the "Code"), and comply, and
cause each Subsidiary to comply, in all other material respects with the
provisions of ERISA and the Code, and the rules and regulations thereunder,
which are applicable to any such plan. Neither the Company nor any Subsidiary
will permit any event or condition to exist which could permit any such plan to
be terminated under circumstances which would cause the lien provided for in
Section 4068 of ERISA to attach to the assets of the Company or any Subsidiary.
(j) Maintenance of Debt to Equity Ratio. Maintain a ratio of
-----------------------------------
Consolidated Indebtedness, other than Indebtedness represented by the Notes, to
Consolidated Tangible Net Worth of not more than 1.50 to 1.00, such ratio to be
measured at the end of each fiscal quarter of the Company.
(k) Maintenance of Consolidated Tangible Net Worth. Maintain a
----------------------------------------------
Consolidated Tangible Net Worth of not less than the sum of $757,000 plus eighty
percent (80%) of the Consolidated Net Income (but not less than zero (0)), for
each fiscal quarter of the Company commencing on, with and from the fiscal
quarter ending June 30, 1995, such amount to be measured at the end of each
fiscal quarter of the Company.
(l) Maintenance of Profitability. Maintain Consolidated Net Income
----------------------------
for each period of four (4) consecutive fiscal quarters of the Company of not
less than $500,000, such amount to be measured at the end of each fiscal quarter
of the Company.
(m) Maintenance of Debt Service Coverage. Maintain a ratio of
------------------------------------
Consolidated Net Earnings Available for Debt Service to the sum of Interest
Charges plus the amount of all principal payments paid or payable during the
applicable period by the Company and its
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<PAGE>
Subsidiaries on Indebtedness for money borrowed of not less than 3.0 to 1.0,
such ratio to be measured at the end of each fiscal quarter of the Company.
(n) Foreign Corrupt Practices Act. Comply, and cause each Subsidiary
-----------------------------
to comply, and cause each officer, director, employee and agent of the Company
and each Subsidiary to comply, at all times with the prohibitions on certain
acts and practices set forth in the Foreign Corrupt Practices Act of 1977, and
any rules or regulations promulgated thereunder.
(o) 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 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.
(p) Status of Notes and Warrants 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 the Purchaser in
determining that the Notes and Warrants 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 III.
(q) Key Man Life Insurance. Obtain and maintain, with financially
----------------------
sound and reputable insurance company, term life insurance on the life of
Dominic K. Chan, in the amount of at least $1,200,000, which proceeds shall be
payable to the order of the Company. The Company will not cause or permit any
assignment of the proceeds of said policy, and will not borrow against such
policy. The Company will add one designee of the Purchaser as a notice party to
such policy, and will request that the issuer of such policy provide such
designee with ten (10) days' notice before such policy is terminated (for
failure to pay premium or otherwise) or assigned, or before any change is made
in the designation of the beneficiary thereof.
(r) Attendance at Board Meetings. The Company shall permit the
----------------------------
Purchaser or its designee to have one observer attend each meeting of its Board
of Directors and each meeting of any committee thereof. The Company shall send
to the Purchaser and such designee
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<PAGE>
the notice of the time and place of such meeting in the same manner and at the
same time as it shall send such notice to its directors or committee members, as
the case may be. The Company shall also provide to the Purchaser copies of all
notices, reports, minutes and consents at the time and in the manner as they are
provided to the Board of Directors or committee.
(s) Compensation. The Company shall pay to its management or
------------
management of any Subsidiary compensation at a rate of compensation which is not
in excess of that commonly paid to management in companies of similar size, of
similar maturity and in similar businesses and all management compensation and
all policies relating thereto shall be approved in advance by a majority of the
members of that Company's Board of Directors.
(t) Compliance with Security Agreement. Comply at all times with all
----------------------------------
of the terms and conditions of the Security Agreement.
(u) Right of Participation. The Company shall, prior to any issuance
----------------------
by the Company of any of its securities (other than debt securities with no
equity feature), offer to each holder of Registrable Shares, by written notice,
the right, for a period of thirty (30) days, to purchase for cash at a purchase
price equal to the price or other consideration for which such securities are to
be issued, all or any portion of that number of such securities so that, after
giving effect to such issuance, such holder will continue to maintain its same
proportionate equity ownership in the Company as it held as of the date of such
notice; provided, however, that the participation rights pursuant to this
subsection (u) shall not apply to securities issued (A) upon exercise of any of
the Warrants, (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 Exhibit 3.20, (D) solely in consideration for the
-------------
acquisition (whether by merger or otherwise) by the Company of all or
substantially all of the stock or assets of any other entity, (E) pursuant to a
firm commitment underwritten public offering and (F) upon exercise of options
granted to officers, directors and employees of the Company after the date
hereof to purchase up to an aggregate of 300,000 shares of Common Stock. The
Company's written notice to each holder of Registrable Shares shall describe the
securities proposed to be issued by the Company and specify the number, price,
payment terms and the name or names of the proposed purchaser or purchasers.
Each holder of Registrable Shares may accept the Company's offer as to the full
number of securities offered or any lesser number, by written notice thereof
given by it to the Company at any time prior to the expiration of the aforesaid
thirty (30) day period, in which event the Company shall promptly sell and such
holder shall buy, upon the terms specified, the number of securities agreed to
be purchased by such holder. The Company shall be free at any time prior to
ninety (90) days after the date of its notice of offer to the holders of
Registrable Shares, to offer and sell the number of such securities not agreed
by such holders of Registrable Shares to be purchased by them, at a price and on
payment terms no less favorable to the Company than those specified in such
notice of offer to such holders of Registrable Shares and to the purchaser or
purchasers named in such notice. However, if such third
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<PAGE>
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 subsection (u). All calculations
set forth in this subsection (u) shall give effect to and assume the conversion,
exercise and exchange into or for (whether directly or indirectly) shares of
Common Stock of all such securities, that are so convertible, exercisable or
exchangeable.
4.02. Negative Covenants. Without limiting any other covenants and
------------------
provisions hereof, the Company covenants and agrees that, as long as any of the
Notes or Warrants are outstanding, it will comply with and observe the following
covenants and provisions, and will cause each Subsidiary to comply with and
observe such of the following covenants and provisions as are applicable to such
Subsidiary, and will not:
(a) Liens. Create, incur, assume or suffer to exist, or permit any
-----
Subsidiary to create, incur, assume or suffer to exist, any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance (including
the lien or retained security title of a conditional vendor) of any nature, upon
or with respect to any of its properties, now owned or hereinafter acquired, or
assign or otherwise convey any right to receive income, except that the
foregoing restrictions shall not apply to mortgages, deeds of trust, pledges,
liens, security interests or other charges or encumbrances:
(i) for taxes, assessments or governmental charges or levies on
property of the Company or any Subsidiary if the same shall not at the time
be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings;
(ii) imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business;
(iii) arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(iv) securing the performance of bids, tenders, contracts (other
than for the repayment of borrowed money), statutory obligations and surety
bonds;
(v) in the nature of zoning restrictions, easements and rights
or restrictions of record on the use of real property which do not
materially detract from its value or impair its use;
(vi) arising by operation of law in favor of the owner or
sublessor of leased premises and confined to the property rented;
(vii) arising from any litigation or proceeding which is being
contested in good faith by appropriate
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<PAGE>
proceedings, provided, however, that no execution or levy has been made;
(viii) described in Exhibit 3.07 which secure the Indebtedness
------------
set forth in Exhibit 3.05, provided that no such lien is extended to cover
------------
other or different property of the Company or any Subsidiary;
(ix) now or hereinafter granted to the Purchaser pursuant to the
Security Agreement; and
(x) now or hereinafter granted to secure Senior Debt.
(b) Indebtedness. Create, incur, assume or suffer to exist, or
------------
permit any Subsidiary to create, incur, assume or suffer to exist, any liability
with respect to Indebtedness except for:
(i) the Notes;
(ii) Indebtedness for money borrowed, provided that such
Indebtedness for money borrowed does not result in the Company's failure to
comply with all of the provisions of Article IV hereof;
(iii) Current Liabilities, other than for borrowed money, which
are incurred in the ordinary course of business; and
(iv) Indebtedness with respect to lease obligations, provided
that such lease obligations do not violate subsection 4.02(c).
(c) Lease Obligations. Create, incur, assume or suffer to exist, or
-----------------
permit any Subsidiary to create, incur, assume or suffer to exist, any
obligations as lessee for the rental or hire of real or personal property in
connection with any sale and leaseback transaction; or become obligated to pay
any rent for real property or personal property under any lease with an original
term, including any lessor options to renew or extend, of more than three years
if the aggregate of consolidated fixed annual rent which would be payable in any
fiscal year by the Company and its Subsidiaries under all such leases would
exceed $1,500,000.
(d) Assumptions or Guaranties of Indebtedness of Other Persons.
----------------------------------------------------------
Assume, guarantee, endorse or otherwise become directly or contingently liable
on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become
directly or contingently liable on (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) any Indebtedness of any other Person, except
for guaranties by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
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<PAGE>
(e) Mergers, Sale of Assets, etc. Merge or consolidate with, or sell,
----------------------------
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) a material portion
of its assets (whether now owned or hereinafter acquired) or sell, assign or
otherwise dispose of (whether in one transaction or in a series of transactions)
any of its accounts receivable (whether now in existence or hereinafter created)
at a discount or with recourse, to, any Person, or permit any Subsidiary to do
any of the foregoing, except for sales or other dispositions of assets in the
ordinary course of business and except that (1) any Subsidiary may merge into or
consolidate with or transfer assets to any other Subsidiary, (2) any Subsidiary
may merge into or transfer assets to the Company, and (3) the Company may merge
any Person into it or otherwise acquire such Person as long as the Company is
the surviving entity, such merger or acquisition does not result in the
violation of any of the provisions of this Agreement and no such violation
exists at the time of such merger or acquisition, and, provided that such merger
or acquisition does not result in the issuance (in one or more transactions) of
shares of the voting stock of the Company representing in the aggregate more
than twenty percent (20%) of the total outstanding voting stock of the Company,
on a fully diluted basis, immediately following the issuance thereof.
(f) Investments in Other Persons. Make or permit any Subsidiary to
----------------------------
make, any loan or advance to any person, or purchase, otherwise acquire, or
permit any Subsidiary to purchase or otherwise acquire, the capital stock,
assets comprising the business of, obligations of, or any interest in, any
Person, except:
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition;
(ii) investments by the Company or a Subsidiary in certificates
of deposit, notes, acceptances and repurchase agreements having a maturity
of not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided
profits of at least $100,000,000 and whose parent holding company has long-
term debt rated Aa1 or higher, and whose commercial paper (if rated) is
rated Prime 1, by Moody's Investors Service, Inc.;
(iii) investments by the Company or a Subsidiary in the highest-
rated commercial paper having a maturity of not more than one year from the
date of acquisition;
(iv) loans or advances from a Subsidiary to the Company; and
(v) travel and other similar advances to employees of the
Company or any Subsidiary in the ordinary course of business.
(g) Distributions. Declare or pay any dividends, purchase, redeem,
-------------
retire, or otherwise acquire for value any of its capital stock (or rights,
options or warrants to purchase such
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<PAGE>
shares) now or hereafter outstanding, return any capital to its stockholders as
such, or make any distribution of assets to its stockholders as such, or permit
any Subsidiary to do any of the foregoing (such transactions being hereinafter
referred to as "Distributions"), except that the Subsidiaries may declare and
------
make payment of cash and stock dividends, return capital and make distributions
of assets to the Company; provided, however, that nothing herein contained shall
-------- -------
prevent the Company from:
(i) effecting a stock split or declaring or paying any dividend
consisting of shares of any class of capital stock to the holders of shares
of such class of capital stock, or
(ii) redeeming any stock of a deceased stockholder out of
insurance held by the Company on that stockholder's life,
if in the case of any such transaction there does not exist at the time of such
Distribution an Event of Default or an event which, but for the requirement that
notice be given or time elapse or both, would constitute an Event of Default and
provided that such Distribution can be made in compliance with the other terms
of this Agreement.
(h) Dealings with Affiliates. Except as is set forth in Exhibit
------------------------ -------
3.11, enter or permit any Subsidiary to enter into any transaction with any
- ----
holder of 5% or more of any class of capital stock of the Company, or any member
of their families or any corporation or other entity in which any one or more of
such stockholders or members of their immediate families directly or indirectly
holds five percent (5%) or more of any class of capital stock except in the
ordinary course of business and on terms not less favorable to the Company or
the Subsidiary than it would obtain in a transaction between unrelated parties.
(i) Maintenance of Ownership of Subsidiaries. Sell or otherwise
----------------------------------------
dispose of any shares of capital stock of any Subsidiary, except to the Company
or another Subsidiary, or permit any Subsidiary to issue, sell or otherwise
dispose of any shares of its capital stock or the capital stock of any
Subsidiary, except to the Company or another Subsidiary, provided, however, that
-------- -------
nothing herein contained shall prevent any merger, consolidation or transfer of
assets permitted by subsection 4.02(e).
(j) Change in Nature of Business. Make, or permit any Subsidiary to
----------------------------
make, any material change in the nature of its business as carried on at the
date hereof.
4.03. Reporting Requirements. The Company will furnish to Massachusetts
----------------------
Capital Resource Company and each other registered holder of any Note, any
Warrant or any Common Stock issued upon exercise of any Warrant who is or was a
partner of Massachusetts Capital Resource Company:
(a) as soon as possible and in any event within five (5) days after
the occurrence of each Event of Default or each event which, with the giving of
notice or lapse of time or both, would constitute an Event of Default, the
statement of the chief financial
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<PAGE>
officer of the Company setting forth details of such Event of Default or event
and the action which the Company proposes to take with respect thereto;
(b) as soon as available and in any event within forty-five (45) days
after the end of each of the first three quarters of each fiscal year of the
Company, consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such quarter and consolidated and consolidating
statements of income and retained earnings and of changes in financial position
of the Company and its Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, all in reasonable detail and duly certified
(subject to year-end audit adjustments) by the chief financial officer of the
Company as having been prepared in accordance with generally accepted accounting
principles consistently applied;
(c) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Company, a copy of the annual audit
report for such year for the Company and its Subsidiaries, including therein
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income and retained earnings and of changes in
financial position of the Company and its Subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all duly certified by independent public accountants of
recognized standing acceptable to the Purchaser;
(d) at the time of delivery of each quarterly and annual statement, a
certificate, executed by the chief financial officer of the Company, stating
that such officer has caused this Agreement, the Notes, the Warrants and the
Security Agreement to be reviewed and has no knowledge of any default by the
Company or any Subsidiary in the performance or observance of any of the
provisions of this Agreement, the Notes, the Warrants or the Security Agreement
or, if such officer has such knowledge, specifying such default and the nature
thereof. Each such certificate shall set forth computations in reasonable
detail demonstrating compliance with the provisions of subsections 4.01(j), (k),
(l) and (m) and subsections 4.02(b) and (c);
(e) promptly upon receipt thereof, any written report submitted to
the Company by independent public accountants in connection with an annual or
interim audit of the books of the Company and its Subsidiaries made by such
accountants to the extent that the Company delivers any such information to its
Board of Directors or any holder of Senior Debt;
(f) 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;
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(g) promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Company or any Subsidiary of the type described in Section 3.04; and
(h) promptly after sending, making available, or filing the same,
such reports and financial statements as the Company or any Subsidiary shall
send or make available to the stockholders of the Company or the Securities and
Exchange Commission.
4.04. Termination of Certain Covenants. The covenants set forth in
--------------------------------
subsections 4.01(a), (b), (c), (j), (k), (l), (m), (q), (r), (s) and (t) and in
subsections 4.02(a), (b), (c), (d), (e), (f), (g) and (i) shall terminate and be
of no further force or effect when the Notes have been redeemed in their
entirety. Further, all of the covenants set forth in Sections 4.01, 4.02 and
4.03 shall terminate and be of no further force and effect upon the later of (i)
when the Notes have been redeemed in their entirety or (ii) when the Company
shall be subject to the reporting requirements of the Exchange Act.
ARTICLE V
REGISTRATION RIGHTS
5.01. "Piggy Back" Registration. If at any time the Company shall
-------------------------
determine to register under the Securities Act (including pursuant to a demand
of any stockholder of the Company exercising registration rights) any of its
Common Stock of the type which has been or may be issued upon the exercise of
the Warrants, other than on Form S-8 or its then equivalent, it shall send to
each holder of Registrable Shares, including each holder who has the right to
acquire Registrable Shares, written notice of such determination and, if within
thirty (30) days after receipt of such notice, such holder shall so request in
writing, the Company shall use its best efforts to include in such registration
statement all or any part of the Registrable Shares such holder requests to be
registered, except that: (A) if, in connection with any offering involving an
underwriting of Common Stock to be issued by the Company, the managing
underwriter shall impose a limitation on the number of shares of such Common
Stock which may be included in any such registration statement because, in its
judgment, such limitation is necessary to effect an orderly public distribution,
and such limitation is imposed pro rata among the holders of such Common Stock
--- ----
having an incidental ("piggy back") right to include such Common Stock in the
registration statement according to the amount of such Common Stock which each
holder had requested to be included pursuant to such right, then the Company
shall be obligated to include in such registration statement only such limited
portion of the Registrable Shares with respect to which such holder has
requested inclusion hereunder and (B) the Company shall not be required to
include in any registration statement filed under this Section 5.01 the
Registrable Shares of any holder if the estimated aggregate price to the public
of the Registrable Shares which such holder has requested be so included is less
than $50,000. No incidental right under this Section 5.01 shall be construed to
limit any registration required under Section 5.02.
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<PAGE>
5.02. Required Registration. If on any two occasions after the earlier of
---------------------
one hundred eighty (180) days after the effective date of the Company's initial
public offering of its Common Stock and three (3) years after the date of this
Agreement, one or more holders of at least forty percent (40%) of the
Registrable Shares shall notify the Company in writing that it or they intend to
offer or cause to be offered for public sale at least twenty percent (20%) of
the Registrable Shares, the Company will so notify all holders of Registrable
Shares, including all holders who have a right to acquire Registrable Shares.
Upon written request of any holder given within thirty (30) days after the
receipt by such holder from the Company of such notification, the Company will,
subject to Section 5.12, use its best efforts to cause such of the Registrable
Shares as may be requested by any holder thereof (including the holder or
holders giving the initial notice of intent to offer) to be registered under the
Securities Act as expeditiously as possible; provided, however, that the
-------- -------
Company's obligation to file a registration statement under this Section 5.02
may be suspended for a period not to exceed ninety (90) days in any twenty-four
(24) month period if there exists at the time material non-public information
relating to the Company which, in the reasonable opinion of the Board of
Directors of the Company, should not be disclosed. If the Company determined to
include shares to be sold by it in any registration requests pursuant to this
Section 5.02, such registration shall be deemed to have been a registration
under Section 5.01 of this Article V.
5.03. Registration on Form S-3. In addition to the rights provided the
------------------------
holder of Registrable Shares in Sections 5.01 and 5.02 above, if the
registration of Registrable Shares under the Securities Act can be effected on
Form S-3 (or any similar form promulgated by the Securities and Exchange
Commission), the Company will promptly so notify each holder of Registrable
Shares, including each holder who has a right to acquire Registrable Shares, and
then will at any time, and from time to time, thereafter, as expeditiously as
possible, use its best efforts to effect qualification and registration under
the Securities Act on said Form S-3 of all or such portion of the Registrable
Shares as the holder or holders shall request; provided, however, that the
-------- -------
number of Registrable Shares requested to be included in such registration
statement shall have an estimated aggregate price to the public of at least
$100,000.
5.04. Effectiveness. The Company will use its best efforts to maintain
-------------
the effectiveness for up to nine (9) months of any registration statement
pursuant to which any of the Registrable Shares are being offered, and from time
to time will amend or supplement such registration statement and the prospectus
contained therein as and to the extent necessary to comply with the Securities
Act and any applicable state securities statute or regulation. The Company will
also provide each holder of Registrable Shares with as many copies of the
prospectus contained in any such registration statement as it may reasonably
request.
5.05. Indemnification of Holder of Registrable Shares. In the event that
-----------------------------------------------
the Company registers any of the Registrable Shares under the Securities Act,
the Company will indemnify and hold harmless each holder and each underwriter of
the Registrable Shares so registered (including any broker or dealer through
whom such shares may be sold) and each person, if any, who controls such holder
or any such
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<PAGE>
underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them become subject under the Securities Act or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse each such holder, each such underwriter and
each such controlling person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement, in any preliminary or amended preliminary prospectus
or in the prospectus (or the registration statement or prospectus as from time
to time amended or supplemented by the Company) or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading or any violation by the Company of any rule or regulation promulgated
under the Securities Act applicable to the Company and relating to action or
inaction required of the Company in connection with such registration, unless
such untrue statement or omission was made in such registration statement,
preliminary or amended, preliminary prospectus or prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented) in reliance upon and in conformity with information furnished in
writing to the Company in connection therewith by such holder of Registrable
Shares, any such underwriter or any such controlling person expressly for use
therein. Promptly after receipt by any holder of Registrable Shares, any
underwriter or any controlling person, of notice of the commencement of any
action in respect of which indemnity may be sought against the Company, such
holder of Registrable Shares, or such underwriter or such controlling person, as
the case may be, will notify the Company in writing of the commencement thereof,
and, subject to the provisions hereinafter stated, the Company shall assume the
defense of such action (including the employment of counsel, who shall be
counsel satisfactory to such holder of Registrable Shares, such underwriter or
such controlling person, as the case may be), and the payment of expenses
insofar as such action shall relate to any alleged liability in respect of which
indemnity may be sought against the Company. Such holder of Registrable Shares,
any such underwriter or any such controlling person shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall not be at the expense of
the Company unless the employment of such counsel has been specifically
authorized by the Company. The Company shall not be liable to indemnify any
person for any settlement of any such action effected without the Company's
consent. The Company shall not, except with the approval of each party being
indemnified under this Section 5.05, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the parties being so indemnified of a
release from all liability in respect to such claim or litigation.
5.06. Indemnification of Company. In the event that the Company registers
--------------------------
any of the Registrable Shares under the Securities Act, each holder of the
Registrable Shares so registered will
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<PAGE>
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each underwriter of the
Registrable Shares so registered (including any broker or dealer through whom
such of the shares may be sold) and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act from and against
any and all losses, claims, damages, expenses or liabilities, joint or several,
to which they or any of them may become subject under the Securities Act or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Company and each such director,
officer, underwriter or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the prospectus (or the registration statement or
prospectus as from time to time amended or supplemented) or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, but only insofar as any such statement or omission was
made in reliance upon and in conformity with information furnished in writing to
the Company in connection therewith by such holder of Registrable Shares
expressly for use therein; provided, however, that such holder's obligations
-------- -------
hereunder shall be limited to an amount equal to the proceeds to such holder of
the Registrable Shares sold in such registration. Promptly after receipt of
notice of the commencement of any action in respect of which indemnity may be
sought against such holder of Registrable Shares, the Company will notify such
holder of Registrable Shares in writing of the commencement thereof, and such
holder of Registrable Shares shall, subject to the provisions hereinafter
stated, assume the defense of such action (including the employment of counsel,
who shall be counsel satisfactory to the Company) and the payment of expenses
insofar as such action shall relate to the alleged liability in respect of which
indemnity may be sought against such holder of Registrable Shares. The Company
and each such director, officer, underwriter or controlling person shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof but the fees and expenses of such counsel shall not be at
the expense of such holder of Registrable Shares unless employment of such
counsel has been specifically authorized by such holder of Registrable Shares.
Such holder of Registrable Shares shall not be liable to indemnify any person
for any settlement of any such action effected without such holder's consent.
5.07. Exchange Act Registration. If the Company at any time shall list
-------------------------
any of its Common Stock of the type which may be issued upon the exercise of the
Warrants on any national securities exchange and shall register such Common
Stock under the Exchange Act, the Company will, at its expense, simultaneously
list on such exchange and maintain such listing of, all of the Common Stock from
time to time issuable upon exercise of the Warrants. If the Company becomes
subject to the reporting requirements of either Section 13 or Section 15(d) of
the Exchange Act, the Company will use its best efforts to timely file with the
Securities and Exchange Commission such
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<PAGE>
information as the Securities and Exchange Commission may require under either
of said Sections; and in such event, the Company shall use its best efforts to
take all action as may be required as a condition to the availability of Rule
144 under the Securities Act (or any successor exemptive rule hereinafter in
effect) with respect to such Common Stock. The Company shall furnish to any
holder of Registrable Shares forthwith upon request (i) a written statement by
the Company as to its compliance with the reporting requirements of Rule 144,
(ii) a copy of the most recent annual or quarterly report of the Company as
filed with the Securities and Exchange Commission, and (iii) such other reports
and documents as a holder may reasonably request in availing itself of any rule
or regulation of the Securities and Exchange Commission allowing a holder to
sell any such Registrable Securities without registration.
5.08. Damages. The Company recognizes and agrees that the holder of
-------
Registrable Shares will not have an adequate remedy if the Company fails to
comply with this Article V and that damages will not be readily ascertainable,
and the Company expressly agrees that, in the event of such failure, it shall
not oppose an application by the holder of Registrable Shares or any other
person entitled to the benefits of this Article V requiring specific performance
of any and all provisions hereof or enjoining the Company from continuing to
commit any such breach of this Article V.
5.09. Further Obligations of the Company. Whenever under the preceding
----------------------------------
Sections of this Article V, the Company is required hereunder to register
Registrable Shares, it agrees that it shall also do the following:
(a) Furnish to each selling holder such copies of each preliminary
and final prospectus and such other documents as said holder may reasonably
request to facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable
Shares covered by said registration statement under the applicable securities or
"blue sky" laws of such jurisdictions as any selling holder may reasonably
request; provided, however, that the Company shall not be obligated to qualify
-------- -------
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to the service of process in suits other than
those arising out of the offer or sale of the securities covered by the
registration statement in any jurisdiction where it is not then so subject;
(c) Furnish to each selling holder a copy of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent public
accountants who have examined and reported on the Company's financial
statements included in the registration statement, to the extent permitted
by the standards of the American Institute of Certified Public Accountants,
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<PAGE>
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' "comfort" letters) with respect to events subsequent to the date of
the financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' "comfort" letters delivered to the underwriters in
underwritten public offerings of securities, to the extent that the Company is
required to deliver or cause the delivery of such opinion or "comfort" letters
to the underwriters in an underwritten public offering of securities;
(d) Permit each selling holder or his counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them;
(e) Furnish to each selling holder a copy of all documents filed and
all correspondence from or to the Securities and Exchange Commission in
connection with any such offering; and
(f) Use its best efforts to insure the obtaining of all necessary
approvals from the National Association of Securities Dealers, Inc.
5.10. Lock-Up Agreement. If requested in writing by the managing
-----------------
underwriter for an underwritten public offering of securities of the Company,
each holder of Registrable Shares shall agree not to sell publicly any
Registrable Shares (other than Registrable Shares being registered in such
offering), without the consent of such managing underwriter, for a period of not
more than one hundred eighty (180) days following the effective date of the
registration statement relating to such offering; provided, however, that all
-------- -------
persons entitled to registration rights with respect to shares of Common Stock,
all other persons selling shares of Common Stock in such offering and all
officers and directors of the Company shall also have agreed not to sell
publicly their Common Stock under the circumstances and pursuant to the terms
set forth in Section 5.10.
5.11. Expenses. In the case of a registration under Section 5.01, 5.02 or
--------
5.03, the Company shall bear all costs and expenses of each such registration,
including, but not limited to, printing, legal and accounting expenses,
Securities and Exchange Commission filing fees and "blue sky" fees and expenses;
provided, however, that the Company shall have no obligation to pay or otherwise
- -------- -------
bear (i) any portion of the fees or disbursements of more than one counsel for
the selling holders of Registrable Shares in connection with the registration of
their Registrable Shares, or (ii) any portion of the underwriters' commissions
or discounts attributable to the Registrable Shares being offered and sold by
the holders of Registrable Shares.
5.12. Limitation on Required Registrations. In the event that the Company
------------------------------------
has not previously filed a registration statement under the Securities Act at
the time that the holder or holders of Registrable Shares notify the Company
pursuant to Section 5.02 that they wish to have the Company register all or a
specified portion of the Registrable shares under the Securities Act, then, in
such event and in lieu of such registration, the Company may, by written notice
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to all holders of Registrable Shares delivered within fifteen (15) days
following the end of the thirty (30) day period referred to in Section 5.02,
notify all such holders that the Company will purchase all or any portion of the
Registrable Shares in accordance with the terms and conditions of Article V-A.
The Company's compliance with Article V-A shall be in lieu of, and shall be
deemed to be in satisfaction of, the registration which had been so requested by
the holder or holders of Registrable Shares under Section 5.02 and the holders
of Registrable Shares shall not be entitled to make a further demand for
registration under Section 5.02 for a period of three hundred sixty (360) days
from the date of their prior demand, and any subsequent demand by such holders
shall also be subject to the terms and conditions of the this Section 5.12.
ARTICLE V-A
PUT OPTION IN LIEU OF REQUIRED REGISTRATION
5A.01. Put Option. If the Company shall, in accordance with Section 5.12,
----------
notify the holders of Registrable Shares that it does not wish to file the
registration statement for which a demand has been made under Section 5.02,
then, in such event, the holder of any Registrable Shares shall have the option,
upon written notice to the Company, to require the Company to purchase all or
any portion of the Registrable Shares at a price equal to the then Fair Market
Value (as hereinafter defined) per share of Common Stock of the Company as of
the Valuation Date (as hereinafter defined) multiplied by each Registrable Share
to be so purchased (minus, in the case of any Registrable Shares which have not
been issued upon exercise of the Warrants, the Purchase Price (as that term is
defined in the Warrants) to be paid to the Company upon the exercise of such
Warrant or the portion thereof for the Registrable Shares to be so purchased).
5A.02. Exercise of Put Option. The option granted pursuant to Section
----------------------
5A.01 shall be effected by delivery of written notice to the Company, which
notice shall specify the number of Registrable Shares to be purchased. The
closing of any purchase and sale pursuant to this Article V-A shall be held at
the offices of the Company on a date specified in writing by the Company, which
date shall be not less than ten (10) days nor more than thirty (30) days after
the determination of the Fair Market Value. The purchase price shall be paid by
the Company at such closing by delivery of a bank or certified check in the full
amount of such purchase price. The foregoing notwithstanding, no holder of
Registrable Shares shall be required to sell all or any portion of the
Registrable Shares if such holder does not wish to accept the Fair Market Value
determined in accordance with Section 5A.03.
5A.03. Fair Market Value and Valuation Date.
------------------------------------
(a) For the purposes of this Article V-A, "Fair Market Value" per
share of Common Stock of the Company shall mean an amount determined by dividing
the Company's Fair Market Value, determined as of the Valuation Date, by the sum
of the number of actual outstanding shares of Common Stock as of the Valuation
Date plus the number of shares of Common Stock then issuable upon exercise of
the Warrants at
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<PAGE>
the Purchase Price (as that term is defined in the Warrants) then in effect and
the number of shares of Common Stock then issuable upon exercise or conversion
of any other outstanding securities of the Company at their then exercise or
conversion price. The Company's Fair Market Value (which shall be determined on
a consolidated basis including all Subsidiaries and shall assume that the
Company has received the full Purchase Price (as that term is defined in the
Warrants) for all of the shares of Common Stock issuable upon exercise of the
Warrants and the full exercise or conversion price for all other outstanding
securities included in the calculation referred to in the immediately prior
sentence) shall be the price which could be obtained for one hundred percent
(100%) of the equity interest in the Company if the Company were sold to a
willing buyer by a willing seller in a single arm's-length transaction,
determined by considering the Company's consolidated profits after tax, book
value, level of revenues and cash flow as of the Valuation Date.
In order to determine such Fair Market Value, within fifteen (15) days
from the date of the sending of the notice provided for in Section 5A.01,
representatives of the Company and the holder or holders of a majority of the
Registrable Shares to be purchased will use their best efforts to reach
agreement on the Company's Fair Market Value. If they are unable to reach such
agreement within ten (10) days after the end of such fifteen (15) day period,
the Company and such holder or holders will agree on the selection of an
independent appraiser. Such appraiser will have twenty (20) days in which to
determine the Company's Fair Market Value. If the Company and such holder or
holders are unable to reach an agreement as to an independent appraiser within
ten (10) days after the aforesaid ten (10) day period, then two appraisers will
be appointed within five (5) days thereafter to determine the Company's Fair
Market Value, one by the Company and one by the holder or holders of a majority
of the Registrable Shares to be so purchased. Each of the Company and such
holder or holders will cause their appraiser to determine independently the
Company's Fair Market Value within twenty (20) days after the time of their
appointment. If the lesser of the two appraised values so determined (the "Low
Value") exceeds or is equal to ninety percent (90%) of the value of the greater
of the two appraised values (the "High Value"), the Company's Fair Market Value
will be deemed to be equal to the average of the two appraisals. If the Low
Value is less than ninety percent (90%) of the High Value, the two appraisers
will themselves appoint a third appraiser within ten (10) days after the two
appraisals have been rendered. Such third appraiser will have twenty (20) days
in which to determine independently the Company's Fair Market Value. The median
of the three (3) appraised values shall be binding on all parties concerned as
the Company's Fair Market Value. The expenses of the appraisal will be borne
solely by the Company.
(b) "Valuation Date" shall mean the last day of the calendar month
immediately preceding the month in which the notice requesting a required
registration shall have been given by the holder or holders of Registrable
shares pursuant to Section 5.02.
5A.04. Additional Payments Upon Merger, Etc. If at any time within one
------------------------------------
hundred eighty (180) days after a closing pursuant to Section 5A.02, the Company
shall: (A) become party to one or more mergers, consolidations, sales of all or
substantially all of its
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<PAGE>
assets or other similar corporate actions pursuant to which the holders of the
Company's Common Stock, in their capacity as such, receive cash, securities or
other property, or the Company is acquired by the purchase of a majority of its
shares of Common Stock, or the Company or its stockholders enter into any
agreement or letter of intent contemplating any of the foregoing transactions or
(B) file a registration statement under the Securities Act, then, in any such
event, the Company shall, simultaneously with the consummation of any such
transaction or the closing date under such registration statement, as the case
may be, make an additional payment to the holder or holders whose Registrable
Shares were so purchased by the Company in an amount equal to the excess, if
any, in the case of clause (A) of the value per share of the cash, securities
and other property that such holder or holders would have received (or that the
Company received in which such holder or holders would have had a beneficial
interest) or in the case of clause (B) the purchase price to the public, less
underwriting discounts and commission, under such registration statement over
the payment received by such holder or holders with respect to such Registrable
Shares.
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default. If any of the following events ("Events of
-----------------
Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of principal of any
of the Notes when due; or
(b) The Company shall fail to pay any interest or premium on any of
the Notes when due and such failure shall continue for five (5) business days;
or
(c) The Company shall default in the performance of any covenant
contained in subsections 4.01(j), (k), (l) or (m) or shall default in the
performance of any covenant contained in Section 4.02; or
(d) Any representation or warranty made by the Company or any
Subsidiary in this Agreement or the Security Agreement or by the Company or any
Subsidiary (or any officers of the Company or any Subsidiary) in any
certificate, instrument or written statement contemplated by or made or
delivered pursuant to or in connection with this Agreement or the Security
Agreement, shall prove to have been incorrect when made in any material respect;
or
(e) The Company or any Subsidiary shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement, the Notes,
the Warrants or the Security Agreement on its part to be performed or observed
and any such failure remains unremedied for ten (10) business days after written
notice thereof shall have been given to the Company by any registered holder of
the Notes; or
(f) The Company or any Subsidiary shall fail to pay any Indebtedness
for borrowed money (other than as evidenced by the
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Notes) owing by the Company or such Subsidiary (as the case may be), or any
interest or premium thereon, when due (or, if permitted by the terms of the
relevant document, within any applicable grace period), whether such
Indebtedness shall become due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, or shall fail to perform any term,
covenant or agreement on its part to be performed under any agreement or
instrument (other than this Agreement or the Notes) evidencing or securing or
relating to any Indebtedness owing by the Company or any Subsidiary, as the case
may be, when required to be performed (or, if permitted by the terms of the
relevant document, within any applicable grace period), if the effect of such
failure to pay or perform is to accelerate, or to permit the holder or holders
of such Indebtedness, or the trustee or trustees under any such agreement or
instrument to accelerate, the maturity of such Indebtedness, unless such failure
to pay or perform shall be waived by the holder or holders of such Indebtedness
or such trustee or trustees; or
(g) The Company or any Subsidiary shall be involved in financial
difficulties as evidenced (i) by its admitting in writing its inability to pay
its debts generally as they become due; (ii) by its commencement of a voluntary
case under Title 11 of the United States Code as from time to time in effect, or
by its authorizing, by appropriate proceedings of its Board of Directors or
other governing body, the commencement of such a voluntary case; (iii) by its
filing an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) by the entry of an order for relief in any involuntary case
commenced under said Title 11; (v) by its seeking relief as a debtor under any
applicable law, other than said Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors, or by its consenting to or acquiescing in such relief;
(vi) by the entry of an order by a court of competent jurisdiction (a) finding
it to be bankrupt or insolvent, (b) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of its creditors,
or (c) assuming custody of, or appointing a receiver or other custodian for, all
or a substantial part of its property; or (vii) by its making an assignment for
the benefit of, or entering into a composition with, its creditors, or
appointing or consenting to the appointment of a receiver or other custodian for
all or a substantial part of its property; or
(h) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the property of
the Company or any Subsidiary and such judgment, writ, or similar process shall
not be released, vacated or fully bonded within sixty (60) days after its issue
or levy; then, and in any such event, the Purchaser or any other holder of the
Notes may, by notice to the Company, declare the entire unpaid principal amount
of the Notes, all interest accrued and unpaid thereon and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the
Notes, all such accrued
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interest and all such amounts shall become and be forthwith due and payable
(unless there shall have occurred an Event of Default under subsection 6.01(g)
in which case all such amounts shall automatically become due and payable),
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Company.
6.02. Annulment of Defaults. Section 6.01 is subject to the condition
---------------------
that, if at any time after the principal of any of the Notes shall have become
due and payable, and before any judgment or decree for the payment of the moneys
so due, or any portion thereof, shall have been entered, all arrears of interest
upon all the Notes and all other sums payable under the Notes and under this
Agreement (except the principal of the Notes which by such declaration shall
have become payable) shall have been duly paid, and every other default and
Event of Default shall have been made good or cured, then and in every such case
the holders of seventy-five percent (75%) or more in principal amount of all
Notes then outstanding may, by written instrument filed with the Company,
rescind and annul such declaration and its consequences; but no such rescission
or annulment shall extend to or affect any subsequent default or Event of
Default or impair any right consequent thereon.
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01. 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):
"Agreement" means this Note and Warrant Purchase Agreement as from time to
time amended and in effect between the parties.
"Capital Resource Company Act" shall have the meaning assigned to that term
in Section 1.12.
"Code" shall have the meaning assigned to that term in Section 4.01(i).
"Company" means and shall include Peritus Software Services, Inc. and its
successors and assigns.
"Common Stock" includes the Company's Class A Voting Common Stock, no par
value per share, as authorized on the date of this Agreement, and any other
securities into which or for which any of such Class A Voting Common Stock may
be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Consolidated" and "consolidating" when used with reference to any term
defined herein mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles.
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<PAGE>
"Consolidated Net Earnings Available for Debt Service" means, for any
period, Consolidated Net Income for such period plus (a) interest paid or
accrued by the Company and its Subsidiaries with respect to all Indebtedness for
such period and (b) income and excess profit taxes for such period and all other
taxes for such period which are imposed on or measured by income after deduction
of interest charges.
"Consolidated Net Income (Loss)" means, for any period, the net income (or
net loss) of the Company and its Subsidiaries for such period, after all
expenses, taxes and other proper charges, determined in accordance with
generally accepted accounting principles eliminating (i) all intercompany items,
(ii) all earnings attributable to equity interests in Persons that are not
Subsidiaries unless actually received by the Company or its Subsidiaries, (iii)
all income arising from the forgiveness, adjustment or negotiated settlement of
any Indebtedness, and (iv) any increase or decrease of income arising from any
change in the method of accounting for any item from that employed in the
preparation of the financial statements attached hereto as Exhibit 3.08.
------------
"Consolidated Tangible Net Worth" means, at any dates, the sum of (a) the
par value of all of the stock of the Company issued and outstanding, (b) the
amount of any additional paid-in-capital and (c)
(i) the positive retained earnings, if any, of the Company
and its Subsidiaries, or
(ii) less, the amount of any deficit in the retained
earnings of the Company and its Subsidiaries
as the same appears on a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with generally accepted accounting
principles consistently applied as of such date, after eliminating all
intercompany items and all amounts properly attributable to (1) any write-up in
the book value of any asset resulting from a revaluation thereof after the date
of this Agreement; (2) the amount of any intangible assets including patents,
trademarks, unamortized debt discount and expense, goodwill, covenants and
agreements and the excess of the purchase price paid for assets or stock
acquired over the value assigned thereto on the books of the Company or of the
Subsidiary which shall have acquired the same; (3) earnings attributable to any
other Person unless actually received by the Company or its Subsidiaries; and
(4) changes in the method of accounting.
"Current Liabilities" means all liabilities of any corporation which would,
in accordance with generally accepted accounting principles consistently
applied, be classified as current liabilities of a corporation conducting a
business the same as or similar to that of such corporation, including, without
limitation, all rental payments due under leases required to be capitalized in
accordance with applicable Statements of Financial Accounting Standards and
fixed prepayments of, and sinking fund payments with respect to, Indebtedness
(including Indebtedness evidenced by the Notes), which payments are required to
be made within one year from the date of determination.
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<PAGE>
"Distribution" shall have the meaning assigned to that term in Section
4.02(g).
"ERISA" shall have the meaning assigned to that term in Section 3.10.
"Events of Default" shall have the meaning assigned to that term in Section
6.01.
"Exchange Act" means the Securities Exchange Act of 1934 or any similar
federal statute, and the rules and regulations of the Securities and Exchange
Commission (or of any other Federal Agency then administering the Exchange Act)
thereunder, all as the same shall be in effect at the time.
"Fair Market Value" shall have the meaning assigned to that term in Section
5A.03(a).
"Government Contract" shall have the meaning assigned to that in Section
3.14.
"Indebtedness" means all obligations, contingent and otherwise, which
should, in accordance with generally accepted accounting principles consistently
applied, be classified upon the obligor's balance sheet as liabilities, but in
any event including, without limitation, liabilities secured by any mortgage on
property owned or acquired subject to such mortgage, whether or not the
liability secured thereby shall have been assumed, and also including, without
limitation, (i) all guaranties, endorsements and other contingent obligations,
in respect of Indebtedness of others, whether or not the same are or should be
so reflected in said balance sheet, except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and (ii) the present value of any lease payments due
under leases required to be capitalized in accordance with applicable Statements
of Financial Accounting Standards, determined in accordance with applicable
Statements of Financial Accounting Standards.
"Interest Charges" means the interest expense of the Company and its
Subsidiaries on Indebtedness (including the current portion thereof).
"Notes" shall have the meaning assigned to that term in Section 1.01.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Purchaser" means and shall include not only the Massachusetts Capital
Resource Company but also any other holder or holders of any of the Notes or
Warrants.
"Registrable Shares" means and include the shares of Common Stock issued
and issuable upon exercise of the Warrants, excluding, however, any such shares
of Common Stock which: (a) have been registered under the Securities Act
pursuant to an effective
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<PAGE>
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them; or (b) have been publicly sold pursuant to
Rule 144 under the Securities Act or another exemption available under the
Securities Act; or (c) are saleable pursuant to Rule 144(k) under the Securities
Act.
"Securities Act" means the Securities Act of 1933 or any similar Federal
statute, and the rules and regulations of the Securities and Exchange Commission
(or of any other Federal agency then administering the Securities Act)
thereunder, all as the same shall be in effect at the time.
"Security Agreement" shall have the meaning assigned to that term in
Section 2.02(a).
"Senior Debt" shall have the meaning assigned to that term in Section
1.10(h).
"Subordinated Debt" means Indebtedness of the Company which has been
subordinated to the Notes in a manner approved in writing by the Purchaser.
"Subsidiary" or "Subsidiaries" means any corporation or trust of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time all of the outstanding shares of every class of such
corporation or trust other than directors' qualifying shares.
"Valuation Date" shall have the meaning assigned to that term in Section
5A.03(b).
"Warrants" shall have the meaning assigned to that term in Section 1.02.
7.02. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with generally accepted accounting
principles consistent with those applied in preparation of the financial
statements attached hereto as Exhibit 3.08, and all financial data submitted
------------
pursuant to this Agreement and all financial tests to be calculated in
accordance with this Agreement shall be prepared and calculated in accordance
with such principles.
ARTICLE VIII
MISCELLANEOUS
8.01. No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
the Purchaser, or any other holder of the Notes or Warrants in exercising any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
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<PAGE>
8.02. Amendments, Waivers and Consents. Any provision in this Agreement,
--------------------------------
the Notes or the Warrants to the contrary notwithstanding, changes in or
additions to this Agreement may be made, and compliance with any covenant or
provision herein or therein set forth may be omitted or waived, if the Company
(i) shall, in the case of the Notes, obtain consent thereto in writing from the
holder or holders of at least seventy-five percent (75%) in principal amount of
all Notes then outstanding, and (ii) shall, in the case of the Warrants, obtain
the consent thereto in writing from the holder or holders of at least seventy-
five percent (75%) of the Common Stock issued and issuable upon exercise of the
Warrants; provided that no such consent shall be effective to reduce or to
--------
postpone the date fixed for the payment of the principal (including any required
redemption) or interest payable on any Note, without the consent of the holder
thereof, or to reduce the percentage of the Notes and Warrants the consent of
the holders of which is required under this Section. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. Written notice of any waiver or consent effected under
this subsection shall promptly be delivered by the Company to any holders who
did not execute the same.
8.03. Addresses for Notices, etc. All notices, requests, demands and
--------------------------
other communications provided for hereunder shall be in writing (including
telegraphic communication) and mailed or telegraphed or delivered to the
applicable party at the addresses indicated below:
If to the Company:
Peritus Software Services, Inc.
304 Concord Road
Billerica, Massachusetts 01821
Attention: President
with a copy to:
Peter B. Tarr, Esquire
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
If to the Purchaser:
Payments should be mailed to:
Massachusetts Capital Resource Company
P. O. Box 3707
Boston, Massachusetts 02241
and all other deliveries and other communications made at
or sent to:
Massachusetts Capital Resource Company
420 Boylston Street
Boston, Massachusetts 02116
Attention: President
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<PAGE>
If to any other holder of the Notes or Warrants: at such holder's address
for notice as set forth in the register maintained by the Company, or, as to
each of the foregoing, at such other address as shall be designated by such
Person in a written notice to the other party complying as to delivery with the
terms of this Section. All such notices, requests, demands and other
communications shall, when mailed or telegraphed, respectively, be effective
when deposited in the mails or delivered to the telegraph company, respectively,
addressed as aforesaid.
8.04. Costs, Expenses and Taxes. The Company agrees to pay on demand all
-------------------------
costs and expenses of the Purchaser in connection with the preparation,
execution and delivery of this Agreement, the Notes, the Warrants, the Security
Agreement and other instruments and documents to be delivered hereunder,
including the reasonable fees and out-of-pocket expenses of Messrs. Testa,
Hurwitz & Thibeault, special counsel for the Purchaser, with respect thereto, as
well as the reasonable fees and out-of-pocket expenses of legal counsel,
independent public accountants and other outside experts reasonably retained by
the Purchaser in connection with the amendment or enforcement of this Agreement,
the Notes, the Warrants, the Security Agreement and other instruments and
documents to be delivered hereunder or thereunder. In addition, the Company
shall pay any and all stamp and other taxes payable or determined to be payable
in connection with the execution and delivery of this Agreement, the Notes, the
Warrants, the Security Agreement and the other instruments and documents to be
delivered hereunder or thereunder and agrees to save the Purchaser harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes and filing fees.
8.05. Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the Company and the Purchaser and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Purchaser.
8.06. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in this Agreement, the Notes, the Warrants, the Security
Agreement or any other instrument or document delivered in connection herewith
or therewith, shall survive the execution and delivery hereof or thereof and the
making of the loans.
8.07. Prior Agreements. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
8.08. Severability. The invalidity or unenforceability of any provision
------------
hereof shall in no way affect the validity or enforceability of any other
provision.
8.09. Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the Commonwealth of Massachusetts.
8.10. Headings. Article, Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only
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<PAGE>
and shall not constitute a part of this Agreement for any other purpose.
8.11. Sealed Instrument. This Agreement is executed as an instrument
-----------------
under seal.
8.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
8.13. Further Assurances. From and after the date of this Agreement, upon
------------------
the request of the Purchaser, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Notes, the Warrants and the Security Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
PERITUS SOFTWARE SERVICES, INC.
By/s/ Dominic K. Chan,
-----------------------------------------------
Dominic K. Chan, President
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By/s/ Ben Bailey III,
-----------------------------------------------
Ben Bailey III, Vice President
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<PAGE>
PERITUS SOFTWARE SERVICES, INC.
304 CONCORD ROAD
BILLERICA, MASSACHUSETTS 01821
MAY 30, 1995
Massachusetts Capital Resource Company
420 Boylston Street
Boston, Massachusetts 02116
Gentlemen:
Reference is made to a certain Note and Warrant Purchase Agreement, dated
as of the date hereof, (the "Agreement") between Peritus Software Services,
Inc., a Massachusetts corporation (the "Company") and Massachusetts Capital
Resource Company (the "Purchaser"). Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Agreement.
This letter confirms to you that the Warrant, execrable for 125,000 shares
of Class A Voting Common Stock of the Company, issued to you this date pursuant
to the Agreement, represents, as of the date hereof, not less than four and
one-half percent (4-1/2%) of the outstanding capital stock of the Company,
calculated on a fully-diluted basis. If for any reason, it should be determined
that the Warrant represents less than said four and one-half percent (4-1/2%) on
the date hereof, the Company will immediately thereupon issue to you additional
common stock purchase warrants, exercisable for that number of shares of Class
A Voting Common stock necessary to bring your ownership of the Company, as of
the date hereof, to said four and one-half percent (4-1/2%). Such additional
warrants will be deemed to be issued pursuant to the Agreement and will be
entitled to all of the rights, benefits and obligations of the Agreement and the
Warrants issued thereunder, and such additional warrants will be deemed to be
issued as of the date hereof.
Very truly yours,
PERITUS SOFTWARE SERVICES, INC.
BY:/s/ Dominic K. Chan
---------------------------------------
Dominic K. Chan, President
<PAGE>
EXHIBIT 10.9
------------
No. W-1 Right to Purchase 125,000 Shares
of Class A Voting Common Stock
of Peritus Software Services, Inc.
PERITUS SOFTWARE SERVICES, INC.
Common Stock Purchase Warrant
Peritus Software Services, Inc., a Massachusetts corporation (the
"Company"), hereby certifies that, for value received Massachusetts Capital
Resource Company, or assigns, is entitled, subject to the terms set forth below,
to purchase from the Company at any time or from time to time before 5:00 P.M.,
Boston time, on June 30, 2002, or such later time as may be specified in Section
17 hereof, 125,000 fully paid and nonassessable shares of Class A Voting Common
Stock, no par value, of the Company, at a purchase price per share of $4.00
(such purchase price per share as adjusted from time to time as herein provided
is referred to herein as the "Purchase Price"). The number and character of
such shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the "Warrants")
evidencing the right to purchase shares of Common Stock of the Company, issued
pursuant to a certain Note and Warrant Purchase Agreement (the "Agreement"),
dated as of May 30, 1995, between the Company and Massachusetts Capital Resource
Company, a copy of which is on file at the principal office of the Company and
the holder of this Warrant shall be entitled to all of the benefits of the
Agreement, as provided therein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Peritus Software Services, Inc.
and any corporation which shall succeed or assume the obligations of the
Company hereunder.
(b) The term "Common Stock" includes the Company's Class A Voting
Common Stock, no par value per share, as authorized on the date of the
Agreement and any other securities into which or for which any of such
Class A Voting Common Stock may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holders of the Warrants at any time
shall be entitled to receive, or shall have received, on the exercise of
the Warrants, in lieu of or in addition to Common Stock, or which at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to section 5 or
otherwise.
<PAGE>
1. Exercise of Warrant.
-------------------
1.1. Full Exercise. This Warrant may be exercised in full by the
-------------
holder hereof by surrender of this Warrant, with the form of subscription at the
end hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then exercisable by the
Purchase Price then in effect.
1.2. Partial Exercise. This Warrant may be exercised in part by
----------------
surrender of this Warrant in the manner and at the place provided in subsection
1.1 except that the amount payable by the holder on such partial exercise shall
be the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the holder in the subscription at the end hereof by (b) the
Purchase Price then in effect. On any such partial exercise the Company at its
expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof
or as such holder (upon payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
1.3. Payment by Notes Surrender. Notwithstanding the payment
--------------------------
provisions of subsections 1.1 and 1.2, all or part of the payment due upon
exercise of this Warrant in full or in part may be made by the surrender by such
holder to the Company of any of the Company's Notes issued pursuant to the
Agreement and such Notes so surrendered shall be credited against such payment
in an amount equal to the principal amount thereof plus accrued interest to the
date of surrender.
1.4. Company Acknowledgment. The Company will, at the time of the
----------------------
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.5. Trustee for Warrant Holders. In the event that a bank or trust
---------------------------
company shall have been appointed as trustee for the holders of the Warrants
pursuant to subsection 4.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to section 12 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
section 1.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
-------------------------------------------------
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes)
-2-
<PAGE>
will cause to be issued in the name of and delivered to the holder hereof, or as
such holder (upon payment by such holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then current market value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to section 1 or
otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
--------------------------------------------------------
Reclassification, etc. In case at any time or from time to time, the holders of
- ---------------------
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in subsection 5.4), then and in each such case the holder of this Warrant,
on the exercise hereof as provided in section 1, shall be entitled to receive
the amount of stock and other securities and property (including cash in the
cases referred to in subdivisions (b) and (c) of this section 3) which such
holder would hold on the date of such exercise if on the date hereof he had been
the holder of record of the number of shares of Common Stock called for on the
face of this Warrant and had thereafter, during the period from the date hereof
to and including the date of such exercise, retained such shares and all such
other or additional stock and other securities and property (including cash in
the cases referred to in subdivisions (b) and (c) of this section 3) receivable
by him as aforesaid during such period, giving effect to all adjustments called
for during such period by sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
---------------------------------------------------------
4.1. In case at any time or from time to time, the Company shall (a)
effect a reorganization, (b) consolidate with or merge into any other person, or
(c) transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, the holder of this Warrant, on the exercise
hereof as provided in section 1 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common
-3-
<PAGE>
Stock (or Other Securities) issuable on such exercise prior to such consummation
or such effective date, the stock and other securities and property (including
cash) to which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the Company
-----------
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this section 4 to a bank or trust company having
its principal office in Boston, Massachusetts, as trustee for the holder or
holders of the Warrants.
4.3. Continuation of Terms. Upon any reorganization, consolidation,
---------------------
merger or transfer (and any dissolution following any transfer) referred to in
this section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in section 6.
5. Adjustment for Issue or Sale of Common Stock at Less Than the Purchase
----------------------------------------------------------------------
Price in Effect.
- ---------------
5.1. General. If the Company shall at any time or from time to time,
-------
issue any additional shares of Common Stock (other than shares of Common Stock
excepted from the provisions of this section 5 by subsections 5.4 and 5.5)
without consideration or for a net consideration per share less than the
Purchase Price in effect immediately prior to such issuance, then, and in each
such case: (a) the Purchase Price shall be lowered to an amount determined by
multiplying such Purchase Price then in effect by a fraction:
(1) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (b) the number of shares of Common
Stock which the net aggregate consideration, if any, received by the
Company for the total number of such additional shares of Common Stock so
issued would purchase at the Purchase Price in effect immediately prior to
such issuance, and
(2) the denominator of which shall be (a) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (b) the number of such additional
shares of Common Stock so issued;
-4-
<PAGE>
and (b) the holder of this Warrant shall thereafter, on the exercise hereof as
provided in section 1, be entitled to receive the number of shares of Common
stock determined by multiplying the number of shares of Common Stock which would
otherwise (but for the provisions of this subsection 5.1) be issuable on such
exercise by the fraction of which (i) the numerator is the Purchase Price which
would otherwise (but for the provisions of this subsection 5.1) be in effect,
and (ii) the denominator is the Purchase Price in effect on the date of such
exercise.
5.2. Definitions, etc. For purposes of this section 5 and of section
----------------
7:
The issuance of any warrants, options or other subscription or
purchase rights with respect to shares of Common Stock and the issuance of
any securities convertible into or exchangeable for shares of Common Stock
(or the issuance of any warrants, options or any rights with respect to
such convertible or exchangeable securities) shall be deemed an issuance at
such time of such Common Stock if the Net Consideration Per Share which may
be received by the Company for such Common Stock (as hereinafter
determined) shall be less than the Purchase Price at the time of such
issuance and, except as hereinafter provided, an adjustment in the Purchase
Price and the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made upon each such issuance in the manner provided
in subsection 5.1. Any obligation, agreement or undertaking to issue
warrants, options, or other subscription or purchase rights at any time in
the future shall be deemed to be an issuance at the time such obligation,
agreement or undertaking is made or arises. No adjustment of the Purchase
Price and the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made under subsection 5.1 upon the issuance of any
shares of Common Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any convertible
securities if any adjustment shall previously have been made upon the
issuance of any such warrants, options or other rights or upon the issuance
of any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any adjustment of the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to this subsection 5.2 which relates
to warrants, options or other subscription or purchase rights with respect
to shares of Common Stock shall be disregarded if, as, and when all of such
warrants, options or other subscription or purchase rights expire or are
canceled without being exercised, so that the Purchase Price effective
immediately upon such cancellation or expiration shall be equal to the
Purchase Price in effect at the time of the issuance of the expired or
canceled warrants, options or other subscriptions or purchase rights, with
such additional adjustments as would have been made to that Purchase Price
had the expired or canceled warrants, options or other subscriptions or
purchase rights not been issued. For purposes of this subsection 5.2, the
"Net Consideration Per Share" which may be received by the Company shall be
determined as follows:
-5-
<PAGE>
(A) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by the
Company for the issuance of such warrants, options, subscriptions, or
other purchase rights or convertible or exchangeable securities, plus
the minimum amount of consideration, if any, payable to the Company
upon exercise or conversion thereof, divided by the aggregate number
of shares of Common Stock that would be issued if all such warrants,
options, subscriptions, or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted.
(B) The "Net Consideration Per Share" which may be received
by the Company shall be determined in each instance as of the date of
issuance of warrants, options, subscriptions or other purchase rights,
or convertible or exchangeable securities without giving effect to any
possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or
other purchase rights or convertible securities.
For purposes of this section 5, if a part or all of the consideration
received by the Company in connection with the issuance of shares of the
Common Stock or the issuance of any of the securities described in this
section 5, consists of property other than cash, such consideration shall
be deemed to have the same value as shall be determined in good faith by
the Board of Directors of the Company.
This subsection 5.2 shall not apply under any of the circumstances
described in subsections 5.4 and 5.5.
5.3 Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold, or shall become subject to issue upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
other issuer of Other Securities or any other person referred to in section 4)
or to subscription, purchase or other acquisition pursuant to any rights or
options granted by the Company (or such other issuer or person), for a
consideration per share such as to dilute the purchase rights evidenced by this
Warrant, the computations, adjustments and readjustments provided for this
section 5 with respect to the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable on the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
5.4 Extraordinary Events. In the event that the Company shall (i)
--------------------
issue additional shares of the Common Stock as a dividend or other distribution
on outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, or (iii) combine its outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock, then, in each such event, the
Purchase Price shall, simultaneously with the happening of such event, be
adjusted by
-6-
<PAGE>
multiplying the then Purchase Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Purchase Price then in effect. The Purchase Price, as adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this subsection 5.4. The holder of this Warrant shall
thereafter, on the exercise hereof as provided in section 1, be entitled to
receive that number of shares of Common Stock determined by multiplying the
number of shares of Common Stock which would otherwise (but for the provisions
of this subsection 5.4) be issuable on such exercise by a fraction of which (i)
the numerator is the Purchase Price which would otherwise (but for the
provisions of this subsection 5.4) be in effect, and (ii) the denominator is the
Purchase Price in effect on the date of such exercise.
5.5 Excluded Shares. Section 5.1 shall not apply to the issuance of
---------------
shares of Common Stock, or options therefor, to directors, officers and
employees of the Company pursuant to any stock options, stock purchase, stock
ownership or compensation plan approved by the Company's Board of Directors,
provided that the aggregate number of shares, and options therefor (including
options outstanding on the date of the Agreement and set forth on Exhibit 3.20
------------
thereto), so issued to directors, officers and employees do not exceed 300,000.
6. No Dilution or Impairment. The Company will not, by amendment of its
-------------------------
Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of the Warrants, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any shares
of stock receivable on the exercise of the Warrants above the amount payable
therefor on such exercise, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock on the exercise of all Warrants from time to
time outstanding, (c) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of assets,
and (d) will not transfer all or substantially all of its properties and assets
to any other person (corporate or otherwise), or consolidate with or merge into
any other person or permit any such person to consolidate with or merge into the
Company (if the Company is not the surviving person), unless such other person
shall expressly assume in writing and will be bound by all the terms of the
Warrants.
-7-
<PAGE>
7. Certificate as to Adjustments. In each case of any adjustment or
-----------------------------
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer to compute such adjustment or readjustment in accordance
with the terms of the Warrants and prepare a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each
such certificate to each holder of a Warrant, and will, on the written request
at any time of any holder of a Warrant, furnish to such holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
8. Notices of Record Date, etc. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class or securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities (other than the issue of Common Stock on the
exercise of the Warrants),
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer,
-8-
<PAGE>
consolidation, merger, dissolution, liquidation or winding-up, and (iii) the
amount and character of any stock or other securities, or rights or options with
respect thereto, proposed to be issued or granted, the date of such proposed
issue or grant and the persons or class of persons to whom such proposed issue
or grant is to be offered or made. Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.
9. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
------------------------------------------------------------
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrants.
10. Exchange of Warrants. On surrender for exchange of any Warrant,
--------------------
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
11. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
12. Warrant Agent. The Company may, by written notice to each holder of a
-------------
Warrant, appoint an agent having an office in either Boston, Massachusetts or
New York, New York for the purpose of issuing Common Stock (or Other Securities)
on the exercise of the Warrants pursuant to section 1, exchanging Warrants
pursuant to section 10, and replacing Warrants pursuant to section 11, or any of
the foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
13. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following terms,
------------------
to all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant may be transferred by endorsement (by
the holder hereof executing the form of
-9-
<PAGE>
assignment at the end hereof) and delivery in the same manner as in the
case of a negotiable instrument transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed
is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and delivery
hereof to a bona fide purchaser hereof for value; each prior taker or owner
waives and renounces all of his equities or rights in this Warrant in favor
of each such bona fide purchaser, and each such bona fide purchaser shall
acquire absolute title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
15. Notices, etc. All notices and other communications from the Company
------------
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
16. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
17. Expiration. The right to exercise this Warrant shall expire at 5:00
----------
P.M., Boston time, on the later of (i) June 30, 2002 or (ii) at such time as all
principal and interest on the Notes (as defined in the Agreement) is paid in
full.
Dated: May 30, 1995 PERITUS SOFTWARE SERVICES, INC.
By /s/ Dominic K. Chan
-------------------------------------
Dominic K. Chan, President
-10-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO PERITUS SOFTWARE SERVICES, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, ...............
shares of Common Stock of PERITUS SOFTWARE SERVICES, INC. and herewith makes
payment of $............ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to ...................., whose
address is ........................
Dated: .................................
(Signature must conform to name of
holder as specified on the face of
the Warrant)
..................................
(Address)
_________________________
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ........................... the right represented by the within Warrant to
purchase .................. shares of Common Stock of PERITUS SOFTWARE SERVICES,
INC. to which the within Warrant relates, and appoints .........................
Attorney to transfer such right on the books of PERITUS SOFTWARE SERVICES, INC.
with full power of substitution in the premises.
Dated: ..................................
(Signature must conform to name of
holder as specified on the face of
the Warrant)
..................................
(Address)
Signed in the presence of:
...........................
-11-
<PAGE>
EXHIBIT 10.10
-------------
PERITUS SOFTWARE SERVICES, INC.
SECURED SUBORDINATED NOTE DUE 2002
$1,000,000 May 30, 1995
For value received, Peritus Software Services, Inc., a Massachusetts
corporation (the "Company"), hereby promises to pay to Massachusetts Capital
Resource Company or registered assigns (hereinafter referred to as the "Payee"),
on or before June 30, 2002, the principal sum of One Million Dollars
($1,000,000) or such part thereof as then remains unpaid, to pay interest from
the date hereof on the whole amount of said principal sum remaining from time to
time unpaid at the rate of ten percent (10%) per annum, such interest to be
payable quarterly on the last day of March, June, September and December in each
year, the first such payment to be due and payable on June 30, 1995, until the
whole amount of the principal hereof remaining unpaid shall become due and
payable, and to pay interest at the rate of fourteen percent (14%) (so far as
the same may be legally enforceable) on all overdue principal (including any
overdue required redemption), premium and interest. Principal, premium, if any,
and interest shall be payable in lawful money of the United States of America,
in immediately available funds, at the principal office of the Payee or at such
other place as the legal holder may designate from time to time in writing to
the Company. Interest shall be computed on the basis of a 360-day year and a
30-day month.
This Note is issued pursuant to and is entitled to the benefits of a
certain Note and Warrant Purchase Agreement, dated as of May 30, 1995, between
the Company and Massachusetts Capital Resource Company (as the same may be
amended from time to time, hereinafter referred to as the "Agreement"), and each
holder of this Note, by his acceptance hereof, agrees to be bound by the
provisions of the Agreement, including, without limitation, that (i) this Note
is subject to prepayment, in whole or in part, as specified in said Agreement,
(ii) the principal of and interest on this Note is subordinated to Senior Debt,
as defined in the Agreement and (iii) in case of an Event of Default, as defined
in the Agreement, the principal of this Note may become or may be declared due
and payable in the manner and with the effect provided in the Agreement.
As further provided in the Agreement, upon surrender of this Note for
transfer or exchange, a new Note or new Notes of the same tenor dated the date
to which interest has been paid on the surrender Note and in an aggregate
principal amount equal to the unpaid principal amount of the Note so surrendered
will be issued to, and registered in the name of, the transferee or transferees.
The Company may treat the
<PAGE>
person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes.
This Note is secured by and entitled to the benefits of a certain Security
Agreement (as that term is defined in the Agreement), dated may 30, 1995, from
the Company to Massachusetts Capital Resource Company.
In case any payment herein provided for shall not be paid when due, the
Company promises to pay all cost of collection, including all reasonable
attorney's fees.
This Note shall be governed by, and construed in accordance with, the laws
of the Commonwealth of Massachusetts and shall have the effect of a sealed
instrument.
The Company and all endorsers and guarantors of this Note hereby waive
presentment, demand, notice of nonpayment, protest and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note.
PERITUS SOFTWARE SERVICES, INC.
By /s/ Dominic K. Chan
-------------------------------------
Dominic K. Chan, President
- 2 -
<PAGE>
EXHIBIT 10.11
-------------
VOTING AGREEMENT
----------------
AGREEMENT, made as of this 30th day of May 1995, by and among Peritus
Software Services, Inc., a Massachusetts corporation (the "Company"), Dominic K.
Chan (the "Stockholder"), and Massachusetts Capital Resource Company, a
Massachusetts special purpose limited partnership (the "Purchaser").
WHEREAS, on the date hereof, the Purchaser is purchasing from the Company
Common Stock Purchase Warrants (the "Warrants") for the purchase (subject to
adjustment as provided for therein) of 125,000 shares of the Company's Class A
Voting Common Stock, no par value, (the "Common Stock") pursuant to the terms of
a certain Note and Warrant Purchase Agreement, dated the date hereof, between
the Company and the Purchaser (the "Purchase Agreement"); and
WHEREAS, the Stockholder is presently the holder of a majority of the
outstanding shares of Common Stock of the Company; and
WHEREAS, it is a condition to the Purchase Agreement that this Agreement be
executed by the parties hereto, and the parties are willing to execute this
Agreement and to be bound by the provisions hereof;
NOW, THEREFORE, in consideration of the premises, the agreements set forth
below, and the parties' desire to further the interests of the Company and its
present and future stockholders, the parties agree as follows:
1. Voting Agreement. At any time and from time, if, and to the extent,
----------------
requested in writing by the Stockholder, the Purchaser shall vote, at any and
all meetings (including any written action in lieu of a meeting) of stockholders
of the Company at which directors are to be elected, all of the shares of Common
Stock issued upon exercise of the Warrants and owned or controlled by it in the
manner specified in writing by the Stockholder.
2. Term. This Agreement shall continue until the earliest of: (i) the
----
completion of a firm commitment underwritten public offering of the Company's
securities, (ii) at such time as the Stockholder shall cease to be a full-time,
active employee of the Company or (iii) the fifth (5th) anniversary of the date
of this Agreement.
3. Specific Enforcement. The Stockholder, the Purchaser and the Company
--------------------
expressly agrees that the Stockholder will be irreparably damaged if this
Agreement is not specifically enforced. Upon a breach or threatened breach of
the terms, covenants and/or conditions of this
<PAGE>
Agreement by the Purchaser or the Company, the Stockholder shall, in addition to
all other remedies, be entitled to a temporary or permanent injunction, without
showing any actual damage, and/or a decree for specific performance, in
accordance with the provisions hereof.
4. Notices. All notices or other communications given hereunder shall be
-------
deemed effective upon delivery at the address of the party to be notified and
shall be mailed by certified or registered mail, return receipt requested,
delivered by courier, telecopied, or sent by other facsimile method (notices by
telecopy or facsimile must be confirmed by next day courier delivery to be
effective), addressed to the address specified below such party's signature
hereto or such other address as such party may subsequently notify the other
parties of in writing.
5. Entire Agreement and Amendments. This Agreement constitutes the
-------------------------------
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a written agreement signed by the Company, the
Stockholder and the Purchaser.
6. Governing Law; Successors and Assigns. This Agreement shall be
-------------------------------------
governed by the laws of the Commonwealth of Massachusetts and shall bind and
inure to the benefit of the heirs, personal representatives, executors,
administrators, successors and assigns of the parties, except that the
Stockholder shall not have the right to assign any of its rights under this
Agreement.
7. Captions. Captions are for convenience only and are not deemed to be
--------
part of this Agreement.
8. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PERITUS SOFTWARE SERVICES, INC.
By /s/ Dominic K. Chan
------------------------------------
Dominic K. Chan, President
Address: 304 Concord Road
Billerica, MA 01821
STOCKHOLDER:
-2-
<PAGE>
/s/Dominic K. Chan
---------------------------------
Dominic K. Chan
Address: _______________________
_______________________
PURCHASER:
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By:/s/Ben Bailey III
-----------------------------------
Ben Bailey III, Vice President
Address: 420 Boylston Street
Boston, MA 02116
-3-
<PAGE>
Exhibit 10.12
-------------
SECURITY AGREEMENT
------------------
The undersigned, Peritus Software Services, Inc., a Massachusetts
corporation with a place of business and executive office located at 304 Concord
Road, Billerica, Massachusetts 01821 (hereinafter referred to as a "Debtor")
hereby grants to Massachusetts Capital Resource Company, a Massachusetts special
purpose limited partnership, with a place of business at 420 Boylston Street,
Boston, Massachusetts 02116 (hereinafter called the "Secured Party"), a security
interest in and agrees and acknowledges that Secured Party has and will continue
to have a security interest in the following:
(A) All of Debtor's inventory of whatever name, nature, kind or
description, all Debtor's goods held for sale or lease or to be furnished under
contracts of service, finished goods, work in process, raw materials, materials
used or consumed by the Debtor, parts, supplies, all wrapping, packaging,
advertising, labeling, and shipping materials, devices, names and marks, all
contract rights and documents relating to any of the foregoing, whether any of
the foregoing be now existing or hereafter arising, wherever located, now owned
or hereafter acquired by the Debtor (all of which is sometimes hereinafter
referred to as "Inventory");
(B) All of the Debtor's presently owned and hereafter acquired equipment,
machinery, furniture, fixtures and all other tangible personal property of
whatsoever kind or nature, together with all proceeds thereof, additions and
accessions thereto or replacements thereof or substitutions therefor (all of
which is sometimes hereinafter referred to as "Equipment");
(C) All of the Debtor's accounts, accounts receivable, notes, bills,
drafts, acceptances, instruments, documents, chattel paper and all other debts,
obligations and liabilities in whatever form owing to the Debtor for goods sold
by it or for services rendered by it, or however otherwise established or
created, all guaranties and security therefor, all right, title and interest of
the Debtor in the goods or services which gave rise thereto, including rights of
an unpaid seller of goods or services; whether any of the foregoing be now
existing or hereafter arising, now or hereafter received by or owing or
belonging to the Debtor (all of which are sometimes hereinafter referred to as
"Accounts");
(D) All of the Debtor's general intangibles, including without limitation,
names, goodwill, trade secrets, copyrights, trademarks, trademark applications,
tradenames, patents, patent applications, licenses, other intellectual property,
permits, governmental approvals, deposit accounts, tax refunds, claims under
insurance
<PAGE>
policies (whether or not proceeds from Collateral), other rights to payment,
rights of setoff, choses in action, rights under judgments, computer programs
and software, contract rights, and all contracts and agreements to, or of which
it is a party or beneficiary, and all intangible personal property of whatsoever
kind or nature now owned by the Debtor as well as any and all thereof that may
be hereafter acquired and in and to all proceeds thereof;
(E) All of the Debtor's books and records, as they exist from time to
time, relating to (A) through (D) above, inclusive;
(F) All other assets of every nature and description, whether it be now
existing or hereafter arising and whether now or hereafter belonging to the
Debtor;
(all hereinafter sometimes collectively referred to as "Collateral"); to secure
the payment of all sums due or which may become due under certain Secured
Subordinated Notes, due June 30, 2002, of the Debtor in the original aggregate
principal amount of One Million Dollars ($1,000,000), such notes being issued
pursuant to a certain Note and Warrant Purchase Agreement (the "Purchase
Agreement") by and between the Debtor and Secured Party of even date herewith
(hereinafter sometimes collectively referred to as "Obligation" or
"Obligations").
I. WARRANTIES AND COVENANTS.
------------------------
The Debtor hereby warrants and covenants that:
(A) The Equipment and Inventory are used primarily for business purposes.
(B) The Equipment and Inventory of the Debtor will be kept at the Debtor's
places of business, set forth in Exhibit A attached hereto. The Debtor will
---------
promptly notify the Secured Party of any change in the location of the
Collateral, and the Debtor will not remove the Equipment from the locations set
forth in Exhibit A without the prior written consent of the Secured Party. The
---------
Debtor will notify the Secured Party, at least twenty (20) days prior to any
such event, of any change in the Debtor's exact legal name, any change in its
places of business or locations of Equipment or Inventory as set forth in
Exhibit A or its establishment of any new place of business or location of
- ---------
Equipment or Inventory or office where its records concerning Accounts and other
assets are kept.
(C) Except for (i) the security interest granted hereby and (ii) the
permitted encumbrances under Section 4.02(a) of the Purchase Agreement (the
"Permitted Encumbrances"), the Debtor is the owner of its presently owned
Collateral and will be the owner of its Collateral hereafter acquired free from
any adverse lien, security interest or encumbrance, and the Debtor will defend
the Collateral
-2-
<PAGE>
against the claims and demands of all persons at any time claiming the same or
any interest therein.
(D) No financing statements (other than the Permitted Encumbrances, if
any) covering any Collateral or any proceeds thereof are on file in any public
office, and at the request of Secured Party, the Debtor will join with Secured
Party in executing one or more (i) financing statements pursuant to the Uniform
Commercial Code, (ii) title certificate lien application forms; and (iii) other
documents necessary or advisable to perfect the security interests evidenced
hereby, all in form satisfactory to Secured Party and the Debtor will pay the
cost of filing the same or filing or recording this Agreement in all public
offices wherever filing or recording is deemed by Secured Party to be necessary
or desirable.
(E) The Debtor will have and maintain insurance at all times with respect
to all its Collateral against risks of fire (including so-called extended
coverage), theft, embezzlement and such other risks as Secured Party may
reasonably require containing such terms, in such form, for such periods and
written by such companies as may be reasonably satisfactory to Secured Party;
and, if requested by the Secured Party, all policies of insurance shall provide
for at least twenty (20) days' written cancellation notice to Secured Party. If
and when requested by the Secured Party, the Debtor shall furnish Secured Party
with certificates or other evidence satisfactory to Secured Party of compliance
with the foregoing insurance provision and, after an Event of Default and while
it is continuing, the Secured Party may act either in its name or as attorney
for the Debtor (for that purpose by these presents duly authorized and appointed
with full power of substitution and revocation) in obtaining, adjusting,
settling and canceling such insurance and endorsing any drafts in payment of any
loss.
(F) The Debtor will upon request made by the Secured Party render to the
Secured Party a list of all Accounts assigned hereunder and a statement
indicating the total dollar amount of the Accounts then outstanding.
(G) The only offices where the Debtor keeps records concerning any
Accounts are listed on Exhibit A and the Debtor will not remove any of such
---------
records from said offices without written consent of the Secured Party.
(H) The Debtor will keep its Collateral free from any adverse lien,
security interest or encumbrances except the Permitted Encumbrances, if any.
The Debtor will at all times keep accurate and complete records of its Accounts,
and the Secured Party or any of its agents shall have the right at reasonable
times and upon prior notice, to inspect the Debtor's books and records relating
to said Accounts or to any other transactions to which the Debtor is a party
-3-
<PAGE>
and from which an Account might arise and to make extracts from said books and
records. The Debtor shall immediately notify the Secured Party of any event
causing material loss or depreciation in value of any of its Accounts and the
amount of such loss or depreciation.
(I) If any of a Debtor's Accounts arise out of contracts with the United
States or any department, agency or instrumentality thereof, the Debtor will
immediately notify the Secured Party thereof in writing and will execute any
instruments and take any steps required by the Secured Party in order that all
monies due and to become due under such contracts shall be assigned to the
Secured Party and notice thereof given to the government under the Federal
Assignment of Claims Act. Notwithstanding the foregoing, the Secured Party
shall not request the Debtor to provide notice to the United States or any
department, agency or instrumentality thereof until an Event of Default has
occurred.
(J) Subsequent to the occurrence of any Event of Default, if any of a
Debtor's Accounts should be evidenced by promissory notes, trade acceptances or
other instruments for the payment of money, the Debtor will immediately deliver
same to the Secured Party, appropriately endorsed to the Secured Party's order
and, regardless of the form of such endorsement, such Debtor hereby waives
presentment, demand or notice of any kind with respect thereto. This Agreement
may, but need not be supplemented by separate assignments of Accounts to the
Secured Party and if such assignments are given the rights and security
interests given thereby shall be in addition to and not in limitation of the
rights and security interests given by this Agreement.
(K) The Debtor will pay promptly when due all taxes and assessments upon
its Collateral or for its use or operation or upon this Agreement or upon any
note or notes secured hereby. In its sole discretion, the Secured Party may:
(i) discharge taxes and liens levied or placed on Collateral; (ii) pay for
insurance thereon or the maintenance and preservation thereof; or (iii) if the
Debtor shall fail to make required deposits in respect of F.I.C.A. or any
withholding taxes, make such deposits or pay such taxes, in whole or in part, or
set up such reserves as the Secured Party in its sole discretion deem necessary
in respect of the Debtor's liability therefor. Any amount so paid, deposited or
reserved for shall constitute a loan for all purposes hereunder, and the Debtor
promises to repay the Secured Party such amounts upon the Secured Party's
demand. Nothing herein shall be deemed to obligate the Secured Party to do any
of the foregoing and the making of any one or more such payments; deposits or
reserves shall not constitute an agreement by the Secured Party to take any
further or similar action or a waiver of any right of the Secured Party
hereunder.
-4-
<PAGE>
(L) The Debtor will keep its Collateral at all times in good order and
repair, reasonable wear and tear excepted, and will make necessary renewals of
and replacements to the same with goods of equal value and serviceability, free
of all liens, security interests and encumbrances, which goods shall
automatically become subject to this Agreement.
II. ADDITIONAL RIGHTS AND ASSURANCES.
--------------------------------
(A) At the Secured Party's request, the Debtor at its expense will
promptly and duly execute and deliver such documents and assurances and take
such actions as may be necessary or desirable or as the Secured Party may
request in order to correct any defect, error or omission which may at any time
be discovered or to more effectively carry out the intent and purpose of this
Agreement and to establish, perfect and protect the Secured Party's security
interest, rights and remedies created or intended to be created hereunder.
(B) Subject to Article VI of this Agreement, the Secured Party will at any
time following an occurrence of an Event of Default hereunder have the right to
take physical possession of the Collateral and to maintain such possession on
the Debtor's premises or to remove the Collateral or any part thereof to such
other places as the Secured Party may desire. If the Secured Party exercises
such right, the Debtor shall at its sole expense upon the Secured Party's
request assemble the same and make it available to the Secured Party at a place
reasonably convenient to the Secured Party. If any Inventory is in the
possession or control of any of the Debtor's agents or processors, the Debtor
shall, at the Secured Party's request, notify them of the Secured Party's
security interest therein and, at the Secured Party's request, instruct them to
hold the same for the Secured Party's account and subject to the Secured Party's
instructions.
(C) The Secured Party may at any time after an occurrence of an Event of
Default (i) in its own name or in the name of others communicate with account
debtors in order to verify with them to the Secured Party's satisfaction the
existence, amount and terms of any Accounts and the absence of any reductions,
discounts, defenses or offsets with respect thereto, or (ii) notify account
debtors that Collateral has been assigned to the Security Party and that
payments by such debtors shall be made directly to the Secured Party. After an
Event of Default and while it is continuing, at the Secured Party's request, the
Debtor will notify any or all such debtors of such assignment, give instruction
and/or indicate on billings to such debtors that their Accounts shall be paid to
the Secured Party and/or supply such debtors with a copy of this Agreement.
(D) Subsequent to the occurrence of any Event of Default, the Secured
Party shall have full power, in its own name or that of the
-5-
<PAGE>
Debtor, to collect, endorse, compromise, settle, sell or otherwise deal with any
or all of the Collateral or proceeds thereof. Subsequent to the occurrence of
any Event of Default, the Debtor agrees upon request of the Secured Party to
appoint any officer or agent of the Secured Party as true and lawful
attorney-in-fact, with power of substitution, to endorse the name of the Debtor
or any of its officers, trustees or agents upon any Accounts, notes, checks,
drafts, money orders, or other instruments of payment (including under any
policy of insurance on Collateral) or Collateral that may come into possession
of the Secured Party in full or part payment of any amounts owing to Secured
Party; to sign and endorse the name of the Debtor or any of its officers,
trustees or agents upon any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts, and any instruments or
documents relating thereto or to the Debtor's rights therein; to give written
notice to such offices and officials of the United States Postal Service to
effect such change or changes of address so that all mail addressed to the
Debtor may be delivered directly to the Secured Party; to take any and all other
actions necessary or appropriate to collect, compromise, settle, sell or
otherwise deal with any or all of the Collateral or proceeds thereof; and to
obtain, adjust, settle and cancel any insurance; hereby granting to each said
attorney-in-fact or his substitute full power to do any and all things necessary
or appropriate to be done in and about the premises as fully and effectually as
the Debtor might or could do, and hereby ratifying all that any said
attorney-in-fact or his substitute shall lawfully do or cause to be done by
virtue hereof.
(E) The Debtor hereby assigns to the Secured Party all sums, including
without limitation return of premiums, which may become payable under any and
all of such Debtor's policies of insurance and directs each insurance company
issuing any such policy to make payment which would otherwise be due thereunder
to the Debtor directly to the Secured Party.
(F) To the extent permitted by Debtor's lease on any premises or place of
business, the Debtor hereby grants to the Secured Party, for a term commencing
on the date of the occurrence of any Event of Default and continuing as long as
any of the Obligations remain outstanding, at a rental of $1.00 for such entire
term, the right to the use of all premises or places of business which such
Debtor now or hereafter may have and where any Collateral may be located for the
purpose of protecting or enforcing the Secured Party's rights to the Collateral.
(G) In the event of the sale, exchange or disposition of any of the
Collateral (other than finished goods in the ordinary course of business) or any
interest therein (and no such sale, exchange or
-6-
<PAGE>
other disposition is hereby authorized or consented to), the Secured Party's
security interest shall nevertheless continue in such Collateral (including
without limitation all proceeds, cash and non-cash) notwithstanding such sale,
exchange or other disposition; and the Secured Party's receipt of any such
proceeds shall not be deemed or construed to be an authorization of or consent
to any such sale, exchange or other disposition.
(H) Any and all instruments, documents, policies and certificates of
insurance, securities, goods, accounts, choses in action, general intangibles,
chattel paper, cash, property and the proceeds thereof (whether or not the same
are Collateral or proceeds thereof) owned by the Debtor or in which the Debtor
has an interest, which now or hereafter are at any time in possession or control
of the Secured Party or any affiliate of the Secured Party or in transit by mail
or carrier to or from the Secured Party or such affiliate or in the possession
of any third party acting in its behalf, without regard to whether the Secured
Party or such affiliate received the same in pledge, for safekeeping, as agent
for collection or transmission or otherwise or had conditionally released the
same, shall constitute security for Obligations and may, after an Event of
Default and while it is continuing, be applied at any time to Obligations which
are then owing, whether due or not due.
(I) A carbon, photographic, or other reproduction of a security agreement
or a financing statement is sufficient as a financing statement to the extent
permitted under applicable law.
III. EVENTS OF DEFAULT.
-----------------
The Debtor shall be in default under this Agreement upon the happening of
any of the following events or conditions (individually and collectively an
"Event of Default"):
(A) Failure by the Debtor to observe or perform any covenant or agreement
referred to herein and, if no other grace or cure period is applicable thereto,
the continuance of such failure for fifteen (15) business days;
(B) Sale, transfer or assignment of any of the Collateral (including via
an assignment of transfer of any interest of the Debtor) (except the sale of
inventory in the ordinary course of business); loss, theft, or substantial
damage or destruction of any of the Collateral which is not fully and adequately
insured against as hereinbefore provided; or
(C) An Event of Default (as defined in the Purchase Agreement or under any
of the documents referred to therein) shall have occurred and is continuing and
such Event of Default has not been cured.
-7-
<PAGE>
IV. REMEDIES.
--------
(A) If an Event of Default occurs:
(1) The Secured Party may declare all obligations secured hereby to
be immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived.
(2) The Secured Party may exercise and shall have any and all rights
and remedies accorded it by the Massachusetts Uniform Commercial Code or the
Uniform Commercial Code as adopted in such state whose laws govern the
disposition of certain Collateral. The requirement of reasonable notice shall
be met, if notice containing such information as may be required under
applicable law is mailed, postage prepaid, to the Debtor or other person
entitled thereto at least ten (10) days (including non-business days) before the
time of sale or disposition of the Collateral. The Debtor shall pay to the
Secured Party on demand any and all expenses, including reasonable legal
expenses and reasonable attorney's fees, incurred or paid the Secured Party in
protecting or enforcing any rights of the Secured Party hereunder, including its
right to take possession of the Collateral, storing and disposing of the same or
in collecting the proceeds thereof.
(3) The Debtor designates and appoints the Secured Party its true and
lawful attorney with full power of substitution in its own name or in the name
of such Debtor to demand, collect, receive, receipt for, sue for, compound and
give acquittance for, any and all amounts due and to become due on the Accounts
and to endorse the name of such Debtor on all commercial paper given in payment
or part-payment thereof and in its reasonable discretion to file any claim or
take any other action which the Secured Party may reasonably deem necessary or
appropriate to protect and preserve and realize upon the security interest of
the Secured Party in the Accounts or the proceeds thereof. The Secured Party
shall also have the right to (i) open all mail addressed to the Debtor; (ii)
change the Post Office box or mailing address of the Debtor; and (iii) use the
Debtor's stationery and billing forms or facsimiles thereof, for the purpose of
collecting Accounts and realizing upon the Collateral.
(B) The Debtor understands and agrees the Secured Party may exercise its
rights hereunder without affording the Debtor an opportunity for a preseizure
hearing before the Secured Party, through judicial process or otherwise, takes
possession of the Collateral upon the occurrence of an Event of Default, and the
Debtor expressly waives its constitutional right, if any, to such prior hearing.
-8-
<PAGE>
(C) No delay in accelerating the maturity of any obligation as aforesaid
or in taking any other action with respect to any Event of Default or in
exercising any rights with respect to the Collateral such affect the rights of
the Secured Party later to take such action with respect thereto, and no waiver
as to one Event of Default shall affect rights as to any other default.
V. MISCELLANEOUS.
-------------
(A) The Debtor irrevocably
(1) agrees that any suit, action, or other legal proceeding arising
out of this Agreement may be brought in the courts of record of the Commonwealth
of Massachusetts or the courts of the United States located in such state;
(2) consents to the jurisdiction of each such court in any such suit;
action or proceeding; and
(3) to the extent permitted under applicable law, waives any
objection which it may have to the laying of venue of such suit, action or
proceeding in any of such courts and waives any right to a trial by jury in any
of such courts.
For such time as the Obligations shall be unpaid in whole or in part, the
Debtor irrevocably designates Dominic K. Chan as its agent to accept and
acknowledge on its behalf service of any and all process in any such suit,
action or proceeding brought in any such court and agree and consent that any
such service of process upon such agent and written notice of such service to
the Debtor by registered or certified mail shall be taken and held to be valid
personal service upon the Debtor whether the Debtor shall then be doing business
within the Commonwealth of Massachusetts and that any such service of process
shall be of the same force and validity as if service were made upon it
according to the laws governing the validity and requirements of such service in
such states and waives all claim of error by reason of any such service. Any
notice, process, pleadings or other papers served upon the aforesaid designated
agent shall, at the same time, be sent by certified or registered mail to the
Debtor.
(B) In case any one or more of the provisions contained herein should be
invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
(C) All rights of the Secured Party hereunder shall inure to the benefit
of its successors and assigns; and all obligations of the Debtor shall bind the
successors or assigns of the Debtor. All the
-9-
<PAGE>
provisions of this Agreement shall be construed by and administered in
accordance with the local laws of the Commonwealth of Massachusetts. This
Agreement shall become effective when it is signed by the Debtor. The Debtor
acknowledges receipt of a copy of this Agreement.
(D) In the absence of gross negligence or willful misconduct, neither the
Secured Party nor any attorney-in-fact appointed hereunder shall be liable to
the Debtor or any other person for any act or omission, any mistake of fact or
any error of judgment in exercising any right or remedy granted herein.
VI. FIRST RIGHTS OF BANK.
--------------------
The Secured Party and the Debtor acknowledge that the Debtor has granted or
may grant a security interest to one or more holders of Senior Debt (as that
term is defined in the Purchase Agreement). Both the Secured Party and the
Debtor hereby expressly acknowledge that the security interest in the Collateral
created hereby is subordinate and junior to such security interest of the holder
or holders of such Senior Debt in the Collateral.
Signed, sealed and delivered this 30th day of May 1995.
PERITUS SOFTWARE SERVICES, INC.
By /s/ Dominic K. Chan
---------------------------------------
Dominic K. Chan, President
Acknowledged and Accepted:
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By /s/ Ben Bailey III
---------------------------------------
Ben Bailey III, Vice President
-10-
<PAGE>
EXHIBIT 10.13
-------------
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I -- THE SHARES...................................................... 1
SECTION 1.01 Issuance, Sale and Delivery of the Shares..................... 1
-----------------------------------------
SECTION 1.02 Closing....................................................... 1
-------
SECTION 1.03 Disclosure of Information by the Purchaser.................... 2
------------------------------------------
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 2
SECTION 2.01 Organization, Qualifications and Corporate Power.............. 2
------------------------------------------------
SECTION 2.02 Authorization of Agreements, Etc.............................. 3
--------------------------------
SECTION 2.03 Validity...................................................... 4
--------
SECTION 2.04 Authorized Capital Stock...................................... 4
------------------------
SECTION 2.05 Financial Statements.......................................... 5
--------------------
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet............ 6
--------------------------------------------------
SECTION 2.07 Litigation; Compliance with Law............................... 6
-------------------------------
SECTION 2.08 Proprietary Information of Third Parties....................... 7
----------------------------------------
SECTION 2.09 Patents, Trademarks, Etc...................................... 7
------------------------
SECTION 2.10 Title to Properties........................................... 8
-------------------
SECTION 2.11 Leasehold Interests........................................... 8
-------------------
SECTION 2.12 Insurance..................................................... 8
---------
SECTION 2.13 Taxes......................................................... 8
-----
SECTION 2.14 Other Agreements.............................................. 9
----------------
SECTION 2.15 Loans and Advances............................................ 11
------------------
SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
------------------------------------------------------
Persons...................................................... 11
-------
SECTION 2.17 Significant Customers and Suppliers............................ 11
-----------------------------------
SECTION 2.18 Governmental Approvals........................................ 11
----------------------
SECTION 2.19 Disclosure.................................................... 12
----------
SECTION 2.20 Offering of the Shares........................................ 12
----------------------
SECTION 2.21 Brokers....................................................... 12
-------
SECTION 2.22 Officers...................................................... 12
--------
SECTION 2.23 Transactions With Affiliates.................................. 13
----------------------------
SECTION 2.24 Employees..................................................... 13
---------
SECTION 2.25 U.S. Real Property Holding Corporation........................ 13
--------------------------------------
SECTION 2.26 Environmental Protection...................................... 13
------------------------
SECTION 2.27 ERISA......................................................... 14
-----
SECTION 2.28 Foreign Corrupt Practices Act................................. 15
-----------------------------
SECTION 2.29 Federal Reserve Regulations................................... 16
---------------------------
SECTION 2.30 Qualified Small Business Stock................................ 16
------------------------------
SECTION 2.31 Equal Employment Opportunity.................................. 16
----------------------------
SECTION 2.32 The Shares as Qualified Investments........................... 16
-----------------------------------
SECTION 2.33 Labor Relations............................................... 17
---------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
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
----------------------------------
SECTION 5.02 Right of Participation........................................ 23
----------------------
SECTION 5.03 Reserve for Conversion Shares................................. 24
-----------------------------
SECTION 5.04 Corporate Existence........................................... 25
-------------------
SECTION 5.05 Properties, Business, Insurance............................... 25
-------------------------------
SECTION 5.06 Inspection, Consultation and Advice........................... 25
-----------------------------------
SECTION 5.07 Restrictive Agreements Prohibited............................. 26
---------------------------------
SECTION 5.08 Transactions with Affiliates.................................. 26
----------------------------
SECTION 5.09 Expenses of Directors......................................... 26
---------------------
SECTION 5.10 Use of Proceeds............................................... 26
---------------
SECTION 5.11 Board of Directors Meetings................................... 26
---------------------------
SECTION 5.12 Compensation Committee........................................ 26
----------------------
SECTION 5.13 Charter....................................................... 27
-------
SECTION 5.14 Performance of Contracts...................................... 27
------------------------
SECTION 5.15 Employee Nondisclosure and Developments Agreements............ 27
--------------------------------------------------
SECTION 5.16 Activities of Subsidiaries.................................... 27
--------------------------
SECTION 5.17 Compliance with Laws.......................................... 27
--------------------
SECTION 5.18 Keeping of Records and Books of Account....................... 28
---------------------------------------
SECTION 5.19 Change in Nature of Business.................................. 28
----------------------------
SECTION 5.20 U.S. Real Property Interest Statement......................... 28
-------------------------------------
SECTION 5.21 International Investment Survey Act of 1976.................... 28
-------------------------------------------
SECTION 5.22 Rule 144A Information......................................... 28
---------------------
SECTION 5.23 Advisory Committee............................................ 29
------------------
SECTION 5.24 Qualified Small Business Stock................................ 29
------------------------------
SECTION 5.25 Equal Employment Opportunity.................................. 29
----------------------------
SECTION 5.26 Status of the Shares as Qualified Investments.................. 30
---------------------------------------------
SECTION 5.27 Termination of Covenants...................................... 30
------------------------
ARTICLE VI -- MISCELLANEOUS.................................................. 30
SECTION 6.01 Expenses...................................................... 30
--------
SECTION 6.02 Survival of Agreements........................................ 31
----------------------
SECTION 6.03 Brokerage..................................................... 31
---------
SECTION 6.04 Parties in Interest........................................... 31
-------------------
SECTION 6.05 Notices....................................................... 31
-------
SECTION 6.06 Governing Law................................................. 32
-------------
SECTION 6.07 Entire Agreement.............................................. 32
----------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 6.08 Counterparts.................................................. 32
------------
SECTION 6.09 Acknowledgment................................................ 32
--------------
SECTION 6.10 Consent of MCRC............................................... 32
---------------
SECTION 6.11 Amendments.................................................... 32
----------
SECTION 6.12 Severability.................................................. 32
------------
SECTION 6.13 Titles and Subtitles.......................................... 32
--------------------
SECTION 6.14 Certain Defined Terms......................................... 32
---------------------
</TABLE>
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 Hale and Dorr
-iii-
<PAGE>
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
----------
(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
-----------------------------------------
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
--------
I, at the aggregate purchase price set forth opposite the name of such Purchaser
- -
under the heading "Aggregate Purchase Price for Shares" on Schedule I.
----------
SECTION 1.02 Closing. The closing shall take place at the offices of
-------
Testa, Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, 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
- ----------
transfer.
<PAGE>
-2-
SECTION 1.03 Disclosure of Information. The Company understands that the
-------------------------
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 faith deems 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
-----------
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.
------------------------------------------------
(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
<PAGE>
-3-
as Exhibit A (the "Registration Rights Agreement"), the Stock Restriction
---------
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
---------
"Stock Restriction Agreement") and the Voting Agreement among the Purchasers in
the form attached as Exhibit C (the "Voting Agreement"), to issue, sell and
---------
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
------------
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
---------
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.
--------------------------------
(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
<PAGE>
-4-
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
--------
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
------------------------
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,
--------------
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
---------
designations, powers, preferences, rights,
<PAGE>
-5-
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
--------------
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)
--------------
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
--------------------
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.
<PAGE>
-6-
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet. Since
--------------------------------------------------
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 mark, 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,
-------------------------------
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
<PAGE>
-7-
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
----------------------------------------
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
------------------------- -----------
and brief description of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
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 mark 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
<PAGE>
-8-
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
-------------------
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,
- ------------
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
-------------------
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
<PAGE>
-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
<PAGE>
-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").
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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
<PAGE>
-15-
Internal Revenue 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
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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
----------------------------
Hale & Dorr, 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.
<PAGE>
-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
<PAGE>
-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, Dominic K. Chan and Bull HN.
(i) Voting Agreement. The Company shall have executed and delivered the
----------------
Voting Agreement.
(j) Non-Competition Agreements. Dominic K. Chan 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, Henry McCance and Michael Humphreys 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 Dominic K. Chan and Marsha
----------------------
Chan shall have entered into a Stock Option Agreement on even date herewith.
<PAGE>
-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 Dominic
-------------------------------
K. Chan and Marsha Chan 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
<PAGE>
-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
<PAGE>
-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 Dominic K. Chan, 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
<PAGE>
-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 Dominic K.
Chan (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
<PAGE>
-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 Dominic K. Chan,
(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.
<PAGE>
-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 Dominic K. Chan 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
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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, Testa, Hurwitz &
Thibeault, 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
<PAGE>
-30-
Stock Restriction 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., 304 Concord
Road, Billerica, Massachusetts 01821, Attention: President, with a copy to
Peter B. Tarr, Esq., Hale and Dorr, 60 State Street, Boston, Massachusetts
02109; and
(b) if to any Purchaser, at the address of such Purchaser set forth in
Schedule I, with a copy to Andrew E. Taylor, Esq., Testa, Hurwitz &
----------
Thibeault, High Street Tower, 125 High Street, Boston, Massachusetts 02110;
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
<PAGE>
-31-
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
<PAGE>
-32-
(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.
<PAGE>
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/ Dominic K. Chan
---------------------------
[Corporate Seal] Title:
--------------------------
Attest:
/s/ Allen K. Deary
- ---------------------------------
Clerk
PURCHASERS:
MATRIX PARTNERS IV, L.P.
By: /s/ W. Michael Humphreys
-----------------------------
Name: W. Michael Humphreys
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. Michael Humphreys
-----------------------------
Name: W. Michael Humphreys
Title: General Partner of Matrix IV Management
Co., L.P., the General Partner of
Matrix IV Entrepreneurs Fund, L.P.
<PAGE>
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity GP Limited Partnership
By: /s/ Henry McCance
-------------------------
General Partner
MASSACHUSETTS CAPITAL
RESOURCE COMPANY
By: /s/ Ben Bailey III
-----------------------
Title:
----------------------
MS. WENDY CAPLAN
/s/ Wendy Caplan
----------------------------
Name: Ms. Wendy Caplan
Address: P.O. Box 979
Westford, MA 01886
MR. THOMAS DEARY and
MS. THERESE DEARY
/s/ Thomas Deary
----------------------------
Name: Mr. Thomas Deary
/s/ Therese Deary
----------------------------
Name: Ms. Therese Deary
Address: 161 South Collier #205A
Marco Island, FL 33937
<PAGE>
MR. JAMES CARROLL and
MS. MARY CARROLL
/s/ James Carroll
----------------------------
Name: Mr. James Carroll
/s/ Mary Carroll
----------------------------
Name: Ms. Mary Carroll
Address: 25 Welwyn Way
Rockville, MA 20850
MR. ARTHUR CARR
/s/ Arthur Carr
----------------------------
Name: Mr. Arthur Carr
Address: 44 Donelly Drive
Dover, MA 02030
MR. MICHAEL DEARY and MS. LAURI DEARY
/s/ Michael Deary
----------------------------
Name: Mr. Michael Deary
/s/ Lauri Deary
----------------------------
Name: Ms. Lauri Deary
Address: 48 Pilgram Road
Longmeadow, MA 01028
<PAGE>
SCHEDULE I
----------
Purchasers
----------
<TABLE>
<CAPTION>
Aggregate Number of
Series A Convertible
Name and Preferred Stock Shares
Address of Purchaser to be Purchased Purchase Price
- -------------------- --------------- --------------
<S> <C> <C>
Matrix Partners IV, L.P. 795,761 $2,228,130.80
Bay Colony Corporate Center
1000 Winter Street
Suite 4500
Waltham, MA 02154
Matrix IV Entrepreneurs 41,882 $117,269.60
Fund, L.P.
Bay Colony Corporate Center
1000 Winter Street
Suite 4500
Waltham, MA 02154
Greylock Equity Limited 837,643 $2,345,400.40
Partnership
One Federal Street
Boston, MA 02110
Massachusetts Capital 196,083 $549,032.40
Resource Company
420 Boylston Street
Boston, MA 02116
Wendy Caplan 6,536 $18,300.80
P.O. Box 979
Westford, MA 01886
Mr. Thomas Deary and 1,830 $5,124.00
Ms. Therese Deary
161 South Collier #205 A
Marco Island, FL 33937
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of
Series A Convertible
Name and Preferred Stock Shares
Address of Purchaser to be Purchased Purchase Price
- -------------------- --------------- --------------
<S> <C> <C>
Mr. James Carroll and 1,830 $5,124.00
Ms. Mary Carroll
25 Welwyn Way
Rockville, MA 20850
Mr. Arthur Carr 18,300 $51,240.00
44 Donelly Drive
Dover, MA 02030
Mr. Michael Deary and 3,660 $10,248.00
Ms. Lauri Deary
48 Pilgram Road
Longmeadow, MA 01028
<CAPTION>
Aggregate Number of
Class A Common
Name and Stock Shares
Address of Purchaser to be Purchased Purchase Price
- -------------------- --------------- --------------
<S> <C> <C>
Massachusetts Capital 71,775 $200,970.00
Resource Company
420 Boylston Street
Boston, MA 02116
</TABLE>
<PAGE>
EXHIBIT 10.14
-------------
REGISTRATION RIGHTS AGREEMENT
March 15, 1996
AGREEMENT, made as of the 15th day of March, 1996, by and among
Peritus Software Services, Inc., a Massachusetts corporation (the "Company") and
the persons listed in the signature pages hereto (collectively, the
"Stockholders" and individually, a "Stockholder").
WHEREAS, the Company and Bull HN Information Systems Inc. ("Bull
NHHN") entered into a certain Agreement dated September 1, 1994 (the "1994
Agreement") ; and
WHEREAS, the Company and Massachusetts Capital Resource Company
("MCRC") entered into a Note and Warrant Purchase Agreement dated May 30, 1995
(the "1995 Note and Warrant Purchase Agreement"); and
WHEREAS, the Company proposes to enter into a certain Series A
Convertible Preferred Stock and Class A Common Stock Purchase Agreement of even
date herewith (the "Purchase Agreement") with the Purchasers listed on Schedule
I thereto under which Purchasers agree to purchase an aggregate of 1,903,525
shares (the "Preferred Shares") of Series A Convertible Preferred Stock, no par
value, of the Company (the "Preferred Stock") and 71,775 shares of Class A
Voting Common Stock, no par value, of the Company (collectively, the "Shares").
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration receipt of which is hereby acknowledged, and in
consideration of the premises and the mutual covenants and obligations contained
in this Agreement, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Class A Common Stock" shall mean the Class A Common Stock, no par value,
--------------------
of the Company, as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Class A Common Stock issued upon
-----------------
conversion of the Preferred Shares.
<PAGE>
-2-
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Registration Expenses" shall mean the expenses so described in Section 8.
---------------------
"Restricted Stock" shall mean (i) the Conversion Shares, (ii) 1,087,500
----------------
shares of Class A Common Stock held by Bull HN as of the date hereof (the
"Bull HN Shares"), (ii) any shares of Class A Common Stock sold to MCRC
pursuant to the Purchase Agreement; (iii) any shares of Class A Common Stock
sold to Matrix Partners IV, L.P., Matrix IV Entrepreneurs Fund, L.P.,
Greylock Equity Limited Partnership and other purchasers pursuant to that
certain Common Stock Purchase Agreement with Dominic K. Chan entered into on
even date herewith, and (v) those shares of Class A Common Stock issuable
upon the exercise of warrants held by MCRC as of the date hereof (the "MCRC
Shares"), excluding Conversion Shares, Bull HN Shares and MCRC Shares any
such shares which have been (a) registered under the Securities Act pursuant
to an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them, (b) publicly sold
pursuant to Rule 144 under the Securities Act or (c) saleable pursuant to
Rule 144(k) under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 8.
----------------
2. Restrictive Legend. Each certificate representing the Shares
------------------
of Restricted Shares shall, except as otherwise provided in this Section 2 or in
Section 3, be stamped or other wise imprinted with a legend substantially in the
following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH
ACT AND ALL SUCH APPLICABLE LAWS OR AN EXEMPTION FROM REGISTRATION
IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault or
Hale and Dorr shall be satisfactory) the securities represented thereby may be
publicly sold without registration under the Securities Act and any applicable
state securities laws.
3. Notice of Proposed Transfer. Prior to any proposed transfer of
---------------------------
any shares of Restricted Stock (other than under the circumstances described in
Sections 4, 5 or 6), the holder thereof shall give written notice to the Company
of its intention to effect such transfer. Each such notice shall describe the
manner of the proposed transfer and, if requested by the
<PAGE>
-3-
Company, shall be accompanied by an opinion of counsel satisfactory to the
Company (it being agreed that Testa, Hurwitz & Thibeault or Hale and Dorr shall
be satisfactory) to the effect that the proposed transfer may be effected
without registration under the Securities Act and any applicable state
securities laws, whereupon the holder of such stock shall be entitled to
transfer such stock in accordance with the terms of its notice; provided,
--------
however, that no such opinion of counsel shall be required for a transfer for no
- -------
consideration (a) to one or more partners of the transferor (in the case of a
transferor that is a partnership) or (b) to an affiliated corporation (in the
case of a transferor that is a corporation). Each certificate for shares of
Restricted Stock transferred as above provided shall bear the legend set forth
in Section 2, except that such certificate shall not bear such legend if (i)
such transfer is in accordance with the provisions of Rule 144 (or any other
rule permitting public sale without registration under the Securities Act) or
(ii) the opinion of counsel referred to above is to the further effect that the
transferee and any subsequent transferee (other than an affiliate of the
Company) would be entitled to transfer such securities in a public sale without
registration under the Securities Act. The restrictions provided for in this
Section 3 shall not apply to securities which are not required to bear the
legend prescribed by Section 2 in accordance with the provisions of that
Section.
4. Required Registration. (a) At any time after the earliest of
---------------------
(i) six months after any registration statement covering a public offering of
securities of the Company under the Securities Act, other than on Form S-8,
shall have become effective, (ii) six months after the Company shall have become
a reporting company under Section 12 of the Exchange Act, and (iii) June 30,
1997, the holders of Restricted Stock constituting at least 40% of the total
shares of Restricted Stock then outstanding may request the Company to register
under the Securities Act all or any portion of the shares of Restricted Stock
held by such requesting holder or holders for sale in the manner specified in
such notice, provided that the shares of Restricted Stock for which registration
--------
has been requested shall constitute at least 20% of the total shares of
Restricted Stock originally issued if such holder or holders shall request the
registration of less than all shares of Restricted Stock then held by such
holder or holders (or any lesser percentage if the reasonably anticipated
aggregate price to the public of such public offering would exceed $5,000,000).
For purposes of this Section 4 and Sections 5, 6, 13(a) and 13(d), the term
"Restricted Stock" shall be deemed to include the number of shares of Restricted
Stock which would be issuable to a holder of Preferred Shares upon conversion of
all Preferred Shares held by such holder at such time, provided, however, that
-------- -------
the only securities which the Company shall be required to register pursuant
hereto shall be shares of Class A Common Stock, and provided, further, however,
-------- ------- -------
that, in any underwritten public offering contemplated by this Section 4 or
Sections 5 and 6, the holders of Preferred Shares shall be entitled, subject to
the agreement of the underwriters, to sell such Preferred Shares to the
underwriters for conversion and sale of the shares of Class A Common Stock
issued upon conversion thereof. Notwithstanding anything to the contrary
contained herein, no request may be made under this Section 4 within 180 days
after the effective date of a registration statement filed by the Company
covering a firm commitment underwritten public offering in which the holders of
Restricted Stock shall have been entitled to join pursuant to Sections 5 or 6
and in which there shall have been effectively registered all shares of
Restricted Stock as to which registration shall have been requested.
<PAGE>
-4-
(b) Following receipt of any notice under this Section 4, the Company
shall immediately notify all holders of Restricted Stock from whom notice has
not been received and shall use its best efforts to register under the
Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices received by the
Company from other holders within 30 days after the giving of such notice by the
Company). If such method of disposition shall be an underwritten public
offering, the Company may designate the managing underwriter of such offering,
subject to the approval of the holders of a majority of the shares of Restricted
Stock to be sold in such offering, which approval shall not be unreasonably
withheld or delayed. The Company shall be obligated to register Restricted
Stock pursuant to this Section 4 on one occasion only, provided, however, that
-------- -------
such obligation shall be deemed satisfied only when a registration statement
covering all shares of Restricted Stock specified in notices received as
aforesaid, for sale in accordance with the method of disposition specified by
the requesting holders, shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Class A Common
Stock to be sold by the Company for its own account, except as and to the extent
that, in the opinion of the managing underwriter (if such method of disposition
shall be an underwritten public offering), such inclusion would adversely affect
the marketing of the Restricted Stock to be sold. Except for registration
statements on Form S-4, S-8 or any successor thereto, the Company will not file
with the Commission any other registration statement with respect to its Class A
Common Stock, whether for its own account or that of other stockholders, until
the earlier of (a) 120 days from the date of receipt of a notice from requesting
holders pursuant to this Section 4 or (b) until the completion of the period of
distribution of the registration contemplated thereby.
5. Incidental Registration. If the Company at any time (other than
-----------------------
pursuant to Section 4 or Section 6) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock for sale to the public), each such time it will
give written notice to all holders of outstanding Restricted Stock of its
intention so to do. Upon the written request of any such holder, received by
the Company within 30 days after the giving of any such notice by the Company,
to register any of its Restricted Stock, the Company will use its best efforts
to cause the Restricted Stock as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the holder of such Restricted Stock so
registered. In the event that any registration pursuant to this Section 5 shall
be, in whole or in part, an underwritten public offering of Class A Common
Stock, the number of shares of Restricted Stock to be included in such an
underwriting may be reduced (pro rata among the requesting holders based upon
the number of shares of Restricted Stock owned by such holders) if and to the
extent that the managing underwriter shall be of the opinion that such inclusion
would adversely affect the marketing of the securities to be sold by the Company
<PAGE>
-5-
therein, provided, however, that such number of shares of Restricted Stock shall
-------- -------
not be reduced if any shares are to be included in such underwriting for the
account of any person other than the Company or requesting holders of Restricted
Stock. Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 5 without thereby incurring
any liability to the holders of Restricted Stock.
6. Registration on Form S-3. If at any time (i) a holder or holders
------------------------
of Preferred Shares or Restricted Stock request that the Company file a
registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the shares of Restricted Stock held by such
requesting holder or holders, the reasonably anticipated aggregate price to the
public of which would exceed $1,000,000, and (ii) the Company is a registrant
entitled to use Form S-3 or any successor thereto to register such shares, then
the Company shall use its best efforts to register under the Securities Act on
Form S-3 or any successor thereto, for public sale in accordance with the method
of disposition specified in such notice, the number of shares of Restricted
Stock specified in such notice. Whenever the Company is required by this
Section 6 to use its best efforts to effect the registration of Restricted
Stock, each of the procedures and requirements of Section 4 (including but not
limited to the requirement that the Company notify all holders of Restricted
Stock from whom notice has not been received and provide them with the
opportunity to participate in the offering) shall apply to such registration,
provided, however, that there shall be no limitation on the number of
- -------- -------
registrations on Form S-3 which may be requested and obtained under this Section
6, and provided, further, however, that the requirements contained in the first
-------- ------- -------
sentence of Section 4(a) shall not apply to any registration on Form S-3 which
may be requested and obtained under this Section 6.
7. Registration Procedures. If and whenever the Company is required
-----------------------
by the provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each prelimi-
<PAGE>
-6-
nary prospectus) as such persons reasonably may request in order to facilitate
the public sale or other disposition of the Restricted Stock covered by such
registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
provided, however, that the Company shall not for any such purpose be required
- -------- -------
(i) to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction or (ii) to subject itself to taxation in any
jurisdiction in which it is not already subject to taxation;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Class A Common
Stock of the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the under writers for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters, stating that such
registration statement has become effective under the Securities Act and that
(A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act, (B) the
registration statement, the related prospectus and each amendment or supplement
thereof comply as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as to
financial statements contained therein) and (C) to such other effects as
reasonably may be requested by counsel for the underwriters or by such seller or
its counsel and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters, stating that
they are independent public accountants within the meaning of the Securities Act
and that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five business days prior to the date of such
letter) with respect to such registration as such underwriters reasonably may
request; and
<PAGE>
-7-
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 120 days
after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. Expenses. All expenses incurred by the Company in complying with
--------
Sections 4, 5 and 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of insurance and fees and
disbursements of one counsel for the sellers of Restricted Stock, but excluding
any Selling Expenses, are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Restricted Stock are
called "Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4, 5 or 6. All Selling Expenses in
connection with each registration statement under Sections 4, 5 or 6 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
9. Indemnification and Contribution. (a) In the event of a
--------------------------------
registration of any of the Restricted Stock under the Securities Act pursuant to
Sections 4, 5 or 6, the Company will indemnify and hold harmless each seller of
such Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or under-
<PAGE>
-8-
writer within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which such seller, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Sections 4, 5 or 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each such seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Company will not be liable in
-------- -------
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such seller, any such underwriter or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Sections 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that such seller will be liable hereunder in any such case if
- -------- -------
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of each seller hereunder shall be
- -------- ------- -------
limited to the pro portion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the shares
sold by such seller under such registration statement bears to the total public
offering price of all securities sold thereunder, but not in any event to exceed
the proceeds received by such seller from the sale of Restricted Stock covered
by such registration statement.
<PAGE>
-9-
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
--------
however, that, if the defendants in any such action include both the indemnified
- -------
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
9; then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
-------- -------
required to contribute any amount in excess of the public offering price of all
such Restricted Stock offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
<PAGE>
-10-
10. Changes in Class A Common Stock or Preferred Stock. If, and as
--------------------------------------------------
often as, there is any change in the Class A Common Stock or the Preferred Stock
by way of a stock split, stock dividend, combination or reclassification, or
through a merger, consolidation, reorganization or recapitalization, or by any
other means, appropriate adjustment shall be made in the provisions hereof so
that the rights and privileges granted hereby shall continue with respect to the
Class A Common Stock or the Preferred Stock as so changed.
11. Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Stock to the public without registration, at all
times after 90 days after any registration statement covering a public offering
of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon request
a written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Restricted Stock without
registration.
12. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the Stockholders as follows:
(a) The execution, delivery and performance of this Agreement by the
Company 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 Charter or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, 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 instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
<PAGE>
-11-
13. Representation and Warranties of the Stockholders. Each
-------------------------------------------------
Stockholder represents and warrants to the Company as follows:
(a) The execution, delivery and performance of this Agreement by such
Stockholder have been duly authorized and will not violate any provision of law,
any order of any court or other agency of government, the Charter, By-laws or
any other governing document, if applicable, or any provision of any indenture,
agreement or other instrument to which such Stockholder or any or its assets is
bound, 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
instrument or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
such Stockholder.
(b) This Agreement has been duly executed and delivered by such
Stockholder and constitutes the legal, valid and binding obligation of such
Stockholder, enforceable in accordance with its terms.
14. Termination of Prior Agreements.
-------------------------------
(a) The Company and Bull HN agree that this Agreement shall supersede
and replace any existing registration rights previously granted to Bull HN
including, but not limited to, those registration rights granted pursuant to
numbered paragraph 5 in the 1994 Agreement.
(b) The Company and MCRC agree that this Agreement shall supersede
and replace any existing registration rights previously granted to MCRC,
including but not limited to those registration rights granted to MCRC under
Article V of the 1995 Note and Warrant Purchase Agreement. The Company and MCRC
further agree to terminate Article V-A of the 1995 Note and Warrant Purchase
Agreement.
15. Miscellaneous.
-------------
(a) All 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 (including without
limitation transferees of any Preferred Shares or Restricted Stock), whether so
expressed or not, provided, however, that registration rights conferred herein
-------- -------
on the holders of the Preferred Shares or Restricted Stock shall only inure to
the benefit of a transferee of Preferred Shares or Restricted Stock if (i) there
is transferred to such transferee at least 125,000 (subject to appropriate
adjustment to reflect stock splits, stock dividends and other similar actions
affecting the number of issued and outstanding shares of Restricted Stock)
shares of Restricted Stock, or (ii) such transferee is a partner, shareholder or
affiliate of a party hereto, and (iii) such transferee is not a direct
---
competitor of the Company.
(b) 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:
<PAGE>
-12-
if to the Company, or any other party hereto, other than Bull HN, at the
address of such party set forth in the Purchase Agreement; or
if to Bull HN, at the address set forth in paragraph 9 of the Stock
Restriction Agreement signed on even date herewith; or
if to any holder or subsequent holder of Shares or Restricted Stock, to it
at such address as may have been furnished to the Company in writing by such
holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Shares or Restricted
Stock) or to the holders of Shares or Restricted Stock (in the case of the
Company) in accordance with the provisions of this paragraph.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the holders
of at least two-thirds of the outstanding shares of Restricted Stock.
(e) 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.
(f) The obligations of the Company to register shares of Restricted
Stock under Sections 4, 5 or 6 shall terminate on the tenth anniversary of the
date of this Agreement.
(g) If requested in writing by the underwriters for the initial
underwritten public offering of securities of the Company, each holder of
Restricted Stock who is a party to this Agreement shall agree not to sell any
shares of Restricted Stock or any other shares of Class A Common Stock (other
than shares of Restricted Stock or other shares of Class A Common Stock being
registered in such offering), without the consent of such underwriters, for a
period of not more than 180 days following the effective date of the
registration statement relating to such offering; provided, however, that all
-------- -------
executive officers and directors of the Company shall also have agreed not to
sell publicly their Class A Common Stock under the circumstances and pursuant to
the terms set forth in this Section 13(g).
(h) Notwithstanding the provisions of Section 7(a), the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not to
exceed 90 days in any 12-month period if there exists at the time material non-
public information relating to the Company which, in the reasonable opinion of
the Company, should not be disclosed.
<PAGE>
-13-
(i) The Company shall not grant to any third party any registration
rights more favorable than or inconsistent with any of those contained herein,
so long as any of the registration rights under this Agreement remains in
effect.
(j) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
PERITUS SOFTWARE SERVICES, INC.
By: /s/Dominic K. Chan
-----------------------------
Title:
-----------------------------
STOCKHOLDERS:
BULL HN INFORMATION SYSTEMS INC.
By: illegible
-----------------------------
Title:
-----------------------------
MATRIX PARTNERS IV, L.P.
By: /s/W. Michael Humphreys
-----------------------------
Name: W. Michael Humphreys
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. Michael Humphreys
-----------------------------
Name: W. Michael Humphreys
Title: General Partner of Matrix IV Management Co.,
L.P., the General Partner of Matrix IV
Entrepreneurs Fund, L.P.
<PAGE>
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity GP Limited Partnership
By: /s/Henry McCance
------------------------------
General Partner
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By: /s/Ben Bailey III
------------------------------
Title:
------------------------------
MS. WENDY CAPLAN
/s/Wendy Caplan
-------------------------------------
Name: Ms. Wendy Caplan
Address: P.O. Box 979
Westford, MA 01886
MR. THOMAS DEARY and
MS. THERESE DEARY
/s/Thomas Deary
-------------------------------------
Name: Mr. Thomas Deary
/s/Therese Deary
-------------------------------------
Name: Ms. Therese Deary
Address: 161 South Collier #205A
Marco Island, FL 33937
<PAGE>
MR. JAMES CARROLL and
MS. MARY CARROLL
/s/ James Carroll
-------------------------------------
Name: Mr. James Carroll
/s/ Mary Carroll
-------------------------------------
Name: Ms. Mary Carroll
Address: 25 Welwyn Way
Rockville, MA 20850
MR. ARTHUR CARR
/s/ Arthur Carr
-------------------------------------
Name: Mr. Arthur Carr
Address: 44 Donelly Drive
Dover, MA 02030
MR. MICHAEL DEARY and
MS. LAURI DEARY
/s/ Michael Deary
-------------------------------------
Name: Mr. Michael Deary
/s/ Lauri Deary
-------------------------------------
Name: Ms. Lauri Deary
Address: 48 Pilgram Road
Longmeadow, MA 01028
<PAGE>
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
October 28, 1996
To each of the Purchasers named in
Schedule I to the Series B Convertible
- ----------
Preferred Stock Purchase Agreement
dated October 28, 1996 (the "Purchasers")
Ladies and Gentlemen:
On March 15, 1996 Peritus Software Services, Inc., a Massachusetts
corporation (the "Company"), and the purchasers listed on Schedule I to a Series
----------
A Convertible Preferred Stock and Class A Common Stock Purchase Agreement of
even date therewith entered into a Registration Rights Agreement (the
"Agreement") of even date therewith. The parties to the Agreement now wish to
amend the Agreement to extend the rights and benefits thereof to holders of
Series B Convertible Preferred Stock, no par value, of the Company (the "Series
B Stock") issued pursuant to a Series B Convertible Preferred Stock Purchase
Agreement of even date herewith (the "Series B Agreement") by and among the
Company and the Purchasers and to make certain other changes as hereinafter set
forth. In consideration of and pursuant to the foregoing, the Company covenants
and agrees with each of you that the Agreement is hereby amended as follows:
All of the shares of Series B Stock purchased pursuant to
the Series B Agreement shall be "Preferred Shares" for all
purposes and to the same extent as if they were originally
included as "Preferred Shares" under the Agreement, and all
references in the Agreement to the "Preferred Stock" and the
"Purchase Agreement" shall include such Series B Stock and
the Series B Agreement, respectively.
This Amendment 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.
<PAGE>
-2-
Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.
Very truly yours,
PERITUS SOFTWARE SERVICES, INC.
By: /s/ Dominic K. Chan
----------------------------------------
Title: President and CEO
-------------------------------------
AGREED TO AND ACCEPTED as of the date first above written.
PURCHASERS:
Y2K Partners, Ltd.
By: JPW Partners, Ltd.
By: Cross Matrix Corp.
By: /s/ John P. Watters
--------------------------------
John P. Watters
Essex Special Growth Opportunities Fund L.P.
By: illegible
-----------------------------------------
Title: CEO
--------------------------------------
Essex High Technology Fund L.P.
By: illegible
-----------------------------------------
Title: CEO
--------------------------------------
<PAGE>
-3-
One & Co.
By: illegible
-----------------------------------------
Title: illegible
--------------------------------------
/s/ Francis W. Hatch
--------------------------------------------
Mr. Francis W. Hatch
/s/ Serena M. Hatch
--------------------------------------------
Ms. Serena M. Hatch
G.W. Merck Trust Under Indenture F/B/O/
Serena M. Hatch
By: /s/ Francis W. Hatch
-----------------------------------------
Title: Trustee
--------------------------------------
The John Merck Fund
By: /s/ Francis W. Hatch
----------------------------------------
Title: Trustee
--------------------------------------
The GBC North American Growth Fund Inc.
By: illegible
-----------------------------------------
Title:
--------------------------------------
The Palmer Organization III L.P.
By: Palmer Partners L.P., its general
partner
By: /s/ William Congleton
--------------------------------------
Title:
-----------------------------------
<PAGE>
-4-
Saturn & Co.
By: /s/ William Corson
-----------------------------------------
Title:
--------------------------------------
/s/ Reed E. Johnstone
--------------------------------------------
Reed E. Johnstone
/s/ Brent P. Johnstone
--------------------------------------------
Brent P. Johnstone
/s/ Ralph E. Stoddard
--------------------------------------------
Ralph E. Stoddard
Doctor Sweeney & Nessa Profit Sharing Plan
u/a Trust dtd 10-1-85 FBO Doctor
Gerald A. Sweeney
By: /s/ Gerald A. Sweeney
-----------------------------------------
Title: Trustee
--------------------------------------
/s/ David McNeish
--------------------------------------------
David McNeish
/s/ Harold F. Close, Jr.
--------------------------------------------
Harold F. Close, Jr.
/s/ Axel Leblois
--------------------------------------------
Axel Leblois
Lindholm Family Partnership
By: /s/ Carl Lindholm
----------------------------------------
Title:
--------------------------------------
<PAGE>
-5-
/s/ Louise Lindholm
---------------------------------------
Mrs. Louise Lindholm
/s/ Jeffrey Lindholm
---------------------------------------
Mr. Jeffrey Lindholm
/s/ Jeffrey Lindholm
---------------------------------------
Mrs. Jeffrey Lindholm
/s/ Arthur Carr
---------------------------------------
Arthur Carr
/s/ Virginia L. Carr
---------------------------------------
Virginia L. Carr
First Stevenson Charitable Remainder
Unitrust
By: /s/ Roger L. Duval
------------------------------------
Roger L. Duval, Trustee
/s/ Roger L. Duval
---------------------------------------
Roger L. Duval
Parties to Registration Rights Agreement of
3/15/96 who are not Purchasers:
BULL HN INFORMATION SYSTEMS, INC.
By: /s/ Thomas Gallager
------------------------------------
Title: Executive Vice President
---------------------------------
MATRIX PARTNERS IV, L.P.
By: /s/ W. Michael Humphreys
------------------------------------
Name: W. Michael Humphreys
Title: General Partner of Matrix IV
Management Co., L.P., the General
Partner of Matrix Partners IV, L.P.
<PAGE>
-6-
MATRIX IV ENTREPRENEURS FUND, L.P.
By: /s/ W. Michael Humphreys
-------------------------------------
Name: W. Michael Humphreys
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/ Henry McCance
----------------------------------
General Partner
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By: /s/ Ben Bailey III
-------------------------------------
Title:
----------------------------------
/s/ Wendy Caplan
----------------------------------------
Ms. Wendy Caplan
/s/ Thomas Deary
----------------------------------------
Mr. Thomas Deary
/s/ Therese Deary
----------------------------------------
Ms. Therese Deary
/s/ James Carroll
----------------------------------------
Mr. James Carroll
<PAGE>
-7-
/s/ Ms. Mary Carroll
---------------------------------------
Ms. Mary Carroll
/s/ Mr. Michael Deary
---------------------------------------
Mr. Michael Deary
/s/ Ms. Lauri Deary
---------------------------------------
Ms. Lauri Deary
<PAGE>
EXHIBIT 10.15
-------------
STOCK RESTRICTION AGREEMENT
AGREEMENT, made as of the 15th day of March, 1996, by and among Peritus
Software Services, Inc., a Massachusetts corporation (the "Company"), the
persons listed collectively as a Stockholder in the signature pages hereto (the
"Stockholder"), and the persons listed as Investors in the signature pages
hereto (collectively, the "Investors" and individually, a "Investor").
WHEREAS, certain of the Investors are acquiring an aggregate of 1,903,525
shares of Series A Convertible Preferred Stock, no par value, of the Company and
71,775 shares of Class A Common Stock, no par value, of the Company pursuant to
the terms of a Series A Convertible Preferred Stock and Class A Common Stock
Purchase Agreement dated the date hereof between the Company and the Purchasers
listed on Schedule I thereto (the "Purchase Agreement"); and
WHEREAS, it is a condition to the obligations of the Investors under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the foregoing, the agreements set forth
below, and the parties' desire to provide for continuity of ownership of the
Company to further the interests of the Company and its present and future
stockholders, the parties hereby agree with each other as follows:
1. Certain Defined Terms. As used in this Agreement, the following terms
---------------------
shall have the following respective meanings:
(a) "Stock" shall mean and include all shares of Class A Common
Stock, and all other securities of the Company which may be issued in exchange
for or in respect of shares of Class A Common Stock (whether by way of stock
split, stock dividend, combination, reclassification, reorganization, or any
other means).
(b) "Shares" shall mean and include all shares of Stock now owned or
hereafter acquired by either (i) the Stockholder or (ii) any Investor.
2. Prohibited Transfers. (a) The Stockholder shall not sell, assign,
--------------------
transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose of all or
any of his Shares except to the Company or as expressly provided in this
Agreement. Notwithstanding the foregoing, the Stockholder may transfer all or
any of his Shares (i) by way of gift to any member of his family or to any trust
for the benefit of any such family member or the Stockholder, provided that any
such transferee shall agree in writing with the Company and the Investors, as a
condition to such transfer, to be bound by all of the provisions of this
Agreement to the same extent as if such transferee were the Stockholder, or (ii)
by will or the laws of descent and distribution, in which event each such
transferee shall be
<PAGE>
bound by all of the provisions of this Agreement to the same extent as if such
transferee were the Stockholder. As used herein, the word "family" shall include
any spouse, lineal ancestor or descendant, brother or sister.
(b) In addition to the foregoing, if requested by the underwriters
for the initial underwritten public offering of securities of the Company, the
Stockholder shall agree not to sell, assign, transfer, pledge, hypothecate,
mortgage, encumber or otherwise dispose of all or any of his Shares, without the
written consent of such underwriters, for a period of not more than 180 days
following the effective date of the registration statement relating to such
offering. This Section 2(b) shall expressly survive a termination of this
Agreement pursuant to clause (a) of Section 5 hereof.
3. Right of First Refusal on Dispositions.
--------------------------------------
(a) If at any time the Stockholder desires to sell for cash all or
any part of his Shares pursuant to a bona fide offer from a third party (the
"Proposed Transferee"), the Stockholder shall submit a written offer (the
"Offer") to sell such Shares (the "Offered Shares") to the Company on terms and
conditions, including price, not less favorable to the Company than those on
which the Stockholder proposes to sell such Offered Shares to the Proposed
Transferee. The Offer shall disclose the identity of the Proposed Transferee,
the Offered Shares proposed to be sold, the total number of Shares owned by the
Stockholder, the terms and conditions, including price, of the proposed sale,
and any other material facts relating to the proposed sale. The Offer shall
further state that the Company may acquire, in accordance with the provisions of
this Agreement, all or any portion of the Offered Shares for the price and upon
the other terms and conditions, including deferred payment (if applicable), set
forth therein; provided, however, that if the number of Offered Shares is 25,000
-------- -------
Shares (appropriately adjusted to reflect stock splits, stock dividends and
other similar actions affecting the number of issued and outstanding Shares) or
fewer, then the Offer may state, at the option of the Stockholder, that if the
Company or any Investor is to acquire any of the Offered Shares, then the
Company and/or the Investors, as a combined group, must acquire all such Offered
Shares. W within fifteen (15) days after receipt of the Offer, the Company shall
give notice to the holder of its intent to purchase all or any portion of the
Offered Shares on the terms and conditions as set forth in the Offer. If, for
any reason whatsoever, the Company shall not exercise its right to purchase all
of the Offered Shares as provided herein, then each of the Investors shall have
the right to purchase, on the same terms and conditions set forth in the Offer,
that portion of the Offered Shares which the Company shall not have agreed to
purchase from the Stockholder (all such remaining shares being referred to as
the "Remaining Offered Shares") subject to the 25,000 aggregate Share minimum
share purchase requirement above (if applicable).
(b) Each Investor shall have the absolute right to purchase that
number of Remaining Offered Shares as shall be equal to the number of Remaining
Offered Shares multiplied by a fraction, the numerator of which shall be the
number of Shares then owned by such Investor and the denominator of which shall
be the aggregate number of Shares
<PAGE>
then owned by all of the Investors. For purposes of Sections 3, 4 and 10, all of
the Stock which a Investor has the right to acquire from the Company upon the
conversion, exercise or exchange of any of the securities of the Company then
owned by such Investor shall be deemed to be Shares then owned by such Investor.
(The amount of Remaining Offered Shares that each Investor is entitled to
purchase under this Section 3(b) shall be referred to as its "Pro Rata
Fraction").
(c) The Investors shall have a right of oversubscription such that if
any Investor fails to accept the Offer as to its Pro Rata Fraction, the other
Investors shall, among them, have the right to purchase up to the balance of the
Remaining Offered Shares not so purchased. Such right of oversubscription may
be exercised by a Investor by accepting the Offer as to more than its Pro Rata
Fraction. If, as a result thereof, such oversubscriptions exceed the total
number of Remaining Offered Shares available in respect of such oversubscription
privilege, the oversubscribing Investors shall be cut back with respect to their
oversubscriptions on a pro rata basis in accordance with their respective Pro
Rata Fractions or as they may otherwise agree among themselves.
(d) If a Investor desires to purchase all or any part of the
Remaining Offered Shares, said Investor shall communicate in writing its
election to purchase to the Stockholder, which communication shall state the
number of Remaining Offered Shares said Investor desires to purchase and shall
be given to the Stockholder in accordance with Section 9 below within thirty
days of the date the Offer was made. Such communication shall, when taken in
conjunction with the Offer, be deemed to constitute a valid, legally binding and
enforceable agreement for the sale and purchase of such Remaining Offered Shares
(subject to the aforesaid limitations as to a Investor's right to purchase more
than its Pro Rata Fraction). Sales of the Remaining Offered Shares to be sold to
purchasing Investors pursuant to this Section 3 shall be made at the offices of
the Company on the 45th day following the date the Offer was made (or if such
45th day is not a business day, then on the next succeeding business day). Such
sales shall be effected by the Stockholder's delivery to each purchasing
Investor of a certificate or certificates evidencing the Remaining Offered
Shares to be purchased by it, duly endorsed for transfer to such purchasing
Investor, against payment to the Stockholder of the purchase price therefor by
such purchasing Investor.
(e) If the Investors do not purchase all of the Remaining Offered
Shares, the Remaining Offered Shares not so purchased may be sold by the
Stockholder at any time within 90 days after the date the Offer was made,
subject to the provisions of Section 4. Any such sale shall be to the Proposed
Transferee, at not less than the price and upon other terms and conditions, if
any, not more favorable to the Proposed Transferee than those specified in the
Offer. Any Remaining Offered Shares not sold within such 90-day period shall
continue to be subject to the requirements of a prior offer pursuant to this
Section 3. If Remaining Offered Shares are sold pursuant to this Section 3 to
any Investor who is not a party to this Agreement, the Remaining Offered Shares
so sold shall no longer be subject to this Agreement.
<PAGE>
(f) The Investors' right of first refusal provided in this Section 3
shall not apply with respect to sales of Shares to the Company.
4. Right of Participation in Sales.
-------------------------------
(a) If at any time the Stockholder desires to sell for cash all or
any part of the Shares owned by him to any person or entity other than one or
more of the Investors (the "Buyer"), each of the Investors shall have the right
to sell to the Buyer, as a condition to such sale by the Stockholder, at the
same price per share and on the same terms and conditions as involved in such
sale by the Stockholder, the same percentage of the Shares owned by such
Investor as the Shares to be sold by the Stockholder to the Buyer represents
with respect to the Shares owned by the Stockholder immediately prior to the
sale of any of his Shares to the Buyer.
(b) Each Investor wishing to so participate in any sale under this
Section 4 shall notify the Stockholder in writing of such intention as soon as
practicable after such Investor's receipt of the Offer made pursuant to Section
3, and in any event within twenty days after the date the Offer was made. Such
notification shall be given to such Stockholder in accordance with Section 9
below.
(c) The Stockholder and each participating Investor shall sell to the
Buyer all, or at the option of the Buyer, any part of the Shares proposed to be
sold by them at not less than the price and upon other terms and conditions, if
any, not more favorable to the Buyer than those in the Offer provided by the
Stockholder under Section 3 above; provided, however, that any purchase of less
-------- -------
than all of such Shares by the Buyer shall be made from the Stockholder and each
participating Investor pro rata based upon the relative amount of the Shares
that the Stockholder and each participating Investor is otherwise entitled to
sell pursuant to Section 4(a).
(d) Any Shares sold by the Stockholder or a participating Investor
pursuant to this Section 4 shall no longer be subject to this Agreement.
(e) The Investors' right to participate in sales pursuant to this
Section 4 shall not apply with respect to sales of Shares to the Company.
5. Term. This Agreement shall terminate (a) immediately prior to the
----
consummation of the first firm commitment underwritten public offering pursuant
to an effective registration statement on Form S-1 (or its then equivalent)
under the Securities Act of 1933, as amended, pursuant to which the aggregate
price paid by the public for the purchase of Stock is at least $15 million or
(b) on the tenth anniversary of the date of this Agreement, whichever occurs
first.
6. Failure to Deliver Shares. If the Stockholder becomes obligated to
-------------------------
sell any Shares to an Investor or the Company under this Agreement and fails to
deliver such Shares in accordance with the terms of this Agreement, such
Investor or the Company, as
<PAGE>
the case may be, may, at its option, in addition to all other remedies it may
have, send to the Stockholder the purchase price for such Shares as is herein
specified. Thereupon, the Company upon written notice to the Stockholder, (a)
shall cancel on its books the certificate or certificates representing the
Shares to be sold and (b) shall issue, in lieu thereof, in the name of such
Investor or the Company, as the case may be, a new certificate or certificates
representing such Shares, and thereupon all of the Stockholder's rights in and
to such Shares shall terminate.
7. Specific Enforcement. The Stockholder expressly agrees that the
--------------------
Investors and the Company will be irreparably damaged if this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by the Stockholder, the Investors
and the Company shall, in addition to all other remedies, each be entitled to a
temporary or permanent injunction, without showing any actual damage, and/or a
decree for specific performance, in accordance with the provisions hereof.
8. Legend. Except with respect to the Shares held by Bull HN Information
------
Systems Inc. ("Bull HN")Bull HN, each certificate evidencing any of the Shares
shall bear a legend substantially as follows:
"The shares represented by this certificate are subject to
restrictions on transfer and may not be sold, exchanged, transferred,
pledged, hypothecated or other wise disposed of except in accordance
with and subject to all the terms and conditions of a certain Stock
Restriction Agreement dated as of March 15, 1996, a copy of which the
Company will furnish to the holder of this certificate upon request
and without charge."
9. Notices. Notices given hereunder shall be deemed to have been duly
-------
given on the date of personal delivery, on the date of postmark if mailed by
certified or registered mail, return receipt requested, or on the date sent by
telecopier or telex to the party being notified at his or its address specified
in the Purchase Agreement, or in the case of Bull HN at Bull HN Information
Systems, Inc., Technology Park, 300 Concord Road, 889A Billerica, MA 01821, or
such other address as the addressee may provide the other parties of in writing.
10. Entire Agreement and Amendments. This Agreement, together with the
-------------------------------
Purchase Agreement and the other agreements attached as exhibits to the Purchase
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof and neither this Agreement nor any provision hereof may be
waived, modified, amended or terminated except by a written agreement signed by
the parties hereto; provided, however, that Investors owning at least two-thirds
-------- -------
of the Shares owned by all Investors may effect any such waiver, modification,
amendment or termination on behalf of all of the Investors. To the extent any
term or other provision of any other indenture, agreement or instrument by which
any party hereto is bound conflicts with this Agreement, this Agreement shall
have precedence over such conflicting term or provision.
<PAGE>
11. Governing Law; Successors and Assigns. This Agreement shall be
-------------------------------------
governed by the laws of the Commonwealth of Massachusetts, and shall be binding
upon the heirs, personal representatives, executors, administrators, successors
and assigns of the parties.
12. Waivers. No waiver of any breach or default hereunder shall be
-------
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
13. Severability. If any provision of this Agreement shall be held to be
------------
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
14. Captions. Captions are for convenience only and are not deemed to be
--------
part of this Agreement.
15. Continuation of Employment. Nothing in this Agreement shall create an
--------------------------
obligation on the Company or the Investors to continue the Stockholder's
employment with the Company.
16. 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.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
COMPANY:
PERITUS SOFTWARE SERVICES, INC.
By: /s/ Dominic K. Chan
---------------------------
Title:________________________
INVESTORS:
BULL HN INFORMATION SYSTEMS INC.
By: illegible
---------------------------
Title:________________________
MATRIX PARTNERS IV, L.P.
By: /s/ W. Michael Humphreys
---------------------------
Name: W. Michael Humphreys
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. Michael Humphreys
---------------------------
Name: W. Michael Humphreys
Title: General Partner of Matrix IV
Management Co., L.P., the General
Partner of Matrix IV Entrepreneurs
Fund, L.P.
<PAGE>
GREYLOCK EQUITY LIMITED
PARTNERSHIP
By: Greylock Equity GP Limited Partnership
By: /s/ Henry McCance
---------------------------
General Partner
MASSACHUSETTS CAPITAL RESOURCE
COMPANY
By: /s/ Ben Bailey III
---------------------------
Title:
------------------------
STOCKHOLDER:
MR. DOMINIC K. CHAN and
MS. MARSHA CHAN
/s/ Dominic K. Chan
------------------------------
Dominic K. Chan
/s/ Marsha Chan
------------------------------
Marsha Chan
<PAGE>
AMENDMENT NO. 1 TO
STOCK RESTRICTION AGREEMENT
October 28, 1996
To each of the Purchasers named in
Schedule I to the Series B Convertible
- ----------
Preferred Stock Purchase Agreement
dated October 28, 1996 (the "Purchasers")
Ladies and Gentlemen:
On March 15, 1996 Peritus Software Services, Inc., a Massachusetts
corporation (the "Company"), Dominic and Marsha Chan (the "Stockholder") and the
purchasers listed on Schedule I to a Series A Convertible Preferred Stock and
----------
Class A Common Stock Purchase Agreement of even date therewith entered into a
Stock Restriction Agreement (the "Agreement") of even date therewith. The
parties to the Agreement now wish to amend the Agreement to extend the rights
and benefits thereof to holders of Series B Convertible Preferred Stock, no par
value, of the Company (the "Series B Stock") issued pursuant to a Series B
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Series B Agreement") by and among the Company and the Purchasers and to make
certain other changes as hereinafter set forth. In consideration of and
pursuant to the foregoing, the Company covenants and agrees with each of you
that the Agreement is hereby amended as follows:
All of the shares of Series B Stock purchased pursuant to
the Series B Agreement shall be "Stock" for all purposes and
to the same extent as if they were originally included as
"Stock" under the Agreement, all references in the Agreement
to the "Stock" and the "Purchase Agreement" shall include
such Series B Stock and the Series B Agreement,
respectively, and all references to "Investors" shall
include the Purchasers.
This Amendment 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.
<PAGE>
-2-
Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.
Very truly yours,
PERITUS SOFTWARE SERVICES, INC.
By: /s/ Dominic S. Chan
-------------------------------------
Title:
----------------------------------
AGREED TO AND ACCEPTED as of the date first above written.
PURCHASERS:
Y2K Partners, Ltd.
By: JPW Partners, Ltd.
By: Cross Matrix Corp.
By:/s/ John P. Watters
----------------------------
John P. Watters
Essex Special Growth Opportunities Fund L.P.
By: illegible
------------------------------------
Title:
---------------------------------
Essex High Technology Fund L.P.
By: illegible
------------------------------------
Title:
---------------------------------
<PAGE>
-3-
One & Co.
By: illegible
-----------------------------------
Title:
---------------------------------
/s/ Mr. Francis W. Hatch
---------------------------------------
Mr. Francis W. Hatch
/s/ Ms. Serena Hatch
---------------------------------------
Ms. Serena M. Hatch
G.W. Merck Trust Under Indenture F/B/O/
Serena M. Hatch
By: /s/ Francis W. Hatch
------------------------------------
Title: Trustee
---------------------------------
The John Merck Fund
By: /s/ Francis W. Hatch
------------------------------------
Title: Trustee
---------------------------------
The GBC North American Growth Fund Inc.
By: illegible
------------------------------------
Title:
---------------------------------
The Palmer Organization III L.P.
By: Palmer Partners L.P., its general partner
By: /s/ William Congleton
--------------------------------
Title:
-----------------------------
<PAGE>
-4-
Saturn & Co.
By: /s/ William Corson
------------------------------------
Title:
---------------------------------
/s/ Reed E. Johnstone
---------------------------------------
Reed E. Johnstone
/s/ Brent P. Johnstone
---------------------------------------
Brent P. Johnstone
/s/ Ralph E. Stoddard
---------------------------------------
Ralph E. Stoddard
Doctor Sweeney & Nessa Profit Sharing Plan
u/a Trust dtd 10-1-85 FBO Doctor Gerald A.
Sweeney
By: /s/ Gerald A. Sweeney
------------------------------------
Title: Trustee
---------------------------------
/s/ David McNeish
---------------------------------------
David McNeish
/s/ Harold F. Close, Jr.
---------------------------------------
Harold F. Close, Jr.
/s/ Axel Leblois
---------------------------------------
Axel Leblois
Lindholm Family Partnership
By: /s/ Carl Lindholm
-----------------------------------
Title:
---------------------------------
<PAGE>
-5-
/s/ Mrs. Louise Lindholm
---------------------------------------
Mrs. Louise Lindholm
/s/ Mr. Jeffrey Lindholm
---------------------------------------
Mr. Jeffrey Lindholm
/s/ Mrs. Jeffrey Lindholm
---------------------------------------
Mrs. Jeffrey Lindholm
/s/ Arthur Carr
---------------------------------------
Arthur Carr
/s/ Virginia L. Carr
---------------------------------------
Virginia L. Carr
First Stevenson Charitable Remainder Unitrust
By: /s/ Roger L. Duval
------------------------------------
Roger L. Duval, Trustee
/s/ Roger L. Duval
---------------------------------------
Roger L. Duval
Parties to Stock Restriction Agreement
of 3/15/96 who are not Purchasers:
BULL HN INFORMATION SYSTEMS, INC.
By: illegible
------------------------------------
Title:
---------------------------------
MATRIX PARTNERS IV, L.P.
By: /s/ W. Michael Humphreys
------------------------------------
Name: W. Michael Humphreys
Title: General Partner of Matrix IV
Management Co., L.P., the General
Partner of Matrix Partners IV, L.P.
<PAGE>
-6-
MATRIX IV ENTREPRENEURS FUND, L.P.
By: /s/ W. Michael Humphreys
------------------------------------
Name: W. Michael Humphreys
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/ Henry McCance
-------------------------------
General Partner
MASSACHUSETTS CAPITAL RESOURCE
COMPANY
By: /s/ Ben Bailey III
------------------------------------
Title:
---------------------------------
/s/ Wendy Caplan
---------------------------------------
Ms. Wendy Caplan
/s/ Thomas Deary
---------------------------------------
Mr. Thomas Deary
/s/ Therese Deary
---------------------------------------
Ms. Therese Deary
/s/ James Carroll
---------------------------------------
Mr. James Carroll
<PAGE>
-7-
/s/ Mary Carroll
---------------------------------------
Ms. Mary Carroll
/s/ Michael Deary
---------------------------------------
Mr. Michael Deary
/s/ Lauri Deary
---------------------------------------
Ms. Lauri Deary
STOCKHOLDER:
/s/ Dominic K. Chan
---------------------------------------
Dominic K. Chan
/s/ Marsha Chan
---------------------------------------
Marsha Chan
<PAGE>
EXHIBIT 10.16
-------------
VOTING AGREEMENT
----------------
AGREEMENT dated as of March 15, 1996, among Peritus Software Services,
Inc., a Massachusetts corporation (the "Company") and the persons listed as
Purchasers in the signature pages hereto (collectively, the "Purchasers" and
individually, a "Purchaser").
WHEREAS, on the date hereof the Purchasers are purchasing from the Company
shares of its Series A Convertible Preferred Stock (the "Series A Preferred")
and shares of its Class A Common Stock pursuant to the terms of a Series A
Convertible Preferred Stock and Class A Common Stock Purchase Agreement dated
the date hereof between the Company, and the Purchasers and certain other
parties (the "Purchase Agreement"); and
WHEREAS, the Purchasers wish to make certain provisions for the voting of
their Shares (as defined below); and
WHEREAS, the purchases by the Purchasers will benefit the Company; and
WHEREAS, it is a condition to the obligations of the Purchasers under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the premises, the agreements set forth
below, and the parties' desire to further the interests of the Company and its
present and future Purchasers, the parties agree as follows:
1. Definition. As used in this Agreement, the term "Shares" means all
----------
shares of Series A Preferred (i) now or hereafter owned (either beneficially or
of record) by a Purchaser, and (ii) which a Purchaser does not own (either
beneficially or of record) but as to which it now or hereafter has the right to
exercise voting control.
2. Designation of Nominees. Each of Matrix Partners IV, L.P. and
-----------------------
Greylock Equity Limited Partnership (together, the "Nominating Purchasers" and
individually, a "Nominating Purchaser") shall have the right to designate a
nominee for election as one of the directors of the Company who shall be elected
solely by the holders of the Series A Preferred, voting separately as a series
(together, the "Nominees" and individually, a "Nominee"). At least 10 days
prior to any meeting (or written action in lieu of a meeting) of Purchasers of
the Company at or by which directors are to be elected by the holders of Series
A Preferred, voting separately as a series, each Nominating Purchaser shall
notify the other Purchasers in writing of the Nominee designated by such
Nominating Purchaser for election as a director. In the absence of any such
notification, it shall be presumed that the Nominating Purchaser's then
incumbent Nominee has been redesignated as its Nominee. The initial Nominees of
Matrix Partners IV, L.P. and Greylock Equity Limited Partnership are W. Michael
Humphreys and Henry F. McCance, respectively.
<PAGE>
3. Election of Directors. At each meeting (or written action in lieu of
---------------------
a meeting) of Purchasers of the Company at or by which directors are to be
elected by the holders of the Series A Preferred, voting separately as a series,
each Purchaser shall vote all of its Shares to elect, as directors of the
Company, the Nominees designated in the manner provided in Section 2.
4. Successor Directors. If a Nominee shall cease to serve as a director
-------------------
for any reason, the Nominating Purchaser which designated such Nominee shall
have the right to designate a successor Nominee and each of the other Purchasers
shall use its best efforts to ensure that such successor Nominee is duly elected
as a director. If a Nominating Purchaser notifies the other Purchasers that it
desires to remove its Nominee as a director, each of the other Purchasers shall
use its best efforts to ensure that such Nominee is duly removed as a director.
If a Nominating Purchaser notifies the Company that it desires to remove its
Nominee as a director and/or designate a successor Nominee, the Company shall,
at the request of such Nominating Purchaser, use its best efforts to ensure that
a meeting of Purchasers of the Company is promptly called for such purpose.
5. Term. This Agreement shall continue until the earlier of (i) such
----
time as either Nominating Purchaser no longer holds at least 476,000 shares of
Series A Preferred or (ii) the tenth anniversary of the date of this Agreement.
6. Specific Enforcement. Each Purchaser and the Company expressly agrees
--------------------
that the Purchaser will be irreparably damaged if this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by a Purchaser or the Company, the
other Purchasers shall, in addition to all other remedies, be entitled to a
temporary or permanent injunction, without showing any actual damage, and/or a
decree for specific performance, in accordance with the provisions hereof.
7. Legend. Each certificate evidencing Shares shall bear a legend
------
substantially as follows:
"The shares represented by this certificate are subject to the
terms and conditions of a certain Voting Agreement dated as of
March 15, 1996, a copy of which the Company will furnish to
the holder of this certificate upon request and without
charge."
8. Notices. All notices or other communications given hereunder shall be
-------
in writing and shall be deemed effective upon delivery at the address of the
party to be notified and shall be mailed by certified or registered mail, return
receipt requested, delivered by courier, telecopied, or sent by other facsimile
method (notices by telecopy or facsimile must be confirmed by next day courier
delivery to be effective), addressed to such address specified in the Purchase
Agreement, or such other address as the addressee may provide the other parties
of in writing.such address as such party may notify the other parties of in
writing.
9. Entire Agreement and Amendments. This Agreement constitutes the
-------------------------------
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a written
<PAGE>
agreement signed by the Company, each of the Nominating Purchasers,
and Purchasers owning at least two-thirds of the Shares owned by all
Purchasers.
10. Governing Law; Successors and Assigns. This Agreement shall be
-------------------------------------
governed by the laws of the Commonwealth of Massachusetts and shall bind and
inure to the benefit of the heirs, personal representatives, executors,
administrators, successors and assigns of the parties. Without limiting the
generality of the foregoing, all covenants and agreements of the Purchasers
shall bind any and all subsequent holders of their Shares, and the Company
agrees that it shall not transfer on its records any such Shares unless (i) the
transferor Purchaser shall have first delivered to the Company and the other
Purchasers the written agreement of the transferee to be bound by this Agreement
to the same extent as if such transferee had originally been a Purchaser
hereunder and (ii) the certificate or certificates evidencing the Shares so
transferred bear the legend specified in Section 7.
11. Captions. Captions are for convenience only and are not deemed to be
--------
part of this Agreement.
12. 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
PERITUS SOFTWARE SERVICES, INC.
By: /s/ Dominic K. Chan
----------------------------------------
Title:
-------------------------------------
Address: 304 Concord Road
Billerica, MA 01821
PURCHASERS:
MATRIX PARTNERS IV, L.P.
By: /s/ W. Michael Humphreys
----------------------------------------
Name: W. Michael Humphreys
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. Michael Humphreys
----------------------------------------
Name: W. Michael Humphreys
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/ Henry McCance
----------------------------------------
General Partner
<PAGE>
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By:/s/Ben Bailey III
----------------------------------------
Title:
-------------------------------------
<PAGE>
EXHIBIT 10.17
-------------
STOCK OPTION AGREEMENT
----------------------
This Agreement is entered into by and among DOMINIC CHAN ("DOMINIC"),
MARSHA C. CHAN ("MARSHA") and PERITUS SOFTWARE SERVICES, INC. ("PERITUS"), a
Massachusetts corporation.
WHEREAS, DOMINIC and MARSHA currently own in the aggregate 3,620,013 shares
of Class A Voting Common Stock (the "Class A Common Stock") of PERITUS (after
giving effect to the two-and-one-half-for-one stock split of the Class A Common
Stock effected on the date hereof, but prior to giving effect to any transaction
contemplated by that certain Class A Common Stock Purchase Agreement, dated as
of March 15, 1996, between DOMINIC and MARSHA and the Purchasers so defined
therein) (any capital stock of Peritus now or hereafter owned by DOMINIC or
MARSHA to be referred to as the "Chan Stock"); and
WHEREAS, the parties desire to provide PERITUS an option to repurchase a
portion of the Chan Stock under certain circumstances upon the death of DOMINIC
in the event that he or MARSHA own any such stock at the time of DOMINIC's
death.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, DOMINIC, MARSHA and PERITUS hereby
agree as follows:
1. Purchase Option.
---------------
(a) Subject to the provisions of Section 1(b), below, upon the death
of DOMINIC, PERITUS shall have the right (the "Purchase Option") to purchase any
part or all of the Chan Stock held by MARSHA or by the personal representative
of the estate of DOMINIC (hereinafter the "Personal Representative") subject to
the following terms and conditions:
(i) The purchase price for each share of such stock shall be its
fair market value, as agreed upon by PERITUS and the Personal Representative, or
as determined by an appraiser chosen by them (such fair market value to be
binding upon MARSHA). If PERITUS and the Personal Representative are unable to
agree upon either the fair market value or an appraiser, the fair market value
shall be determined by the American Arbitration Association.
(ii) In computing such fair market value, no discount shall be
applied if the shares in question represent a minority of the total issued and
outstanding shares of capital stock of PERITUS or as a result of any restriction
on transfer of the shares.
<PAGE>
(b) Notwithstanding the foregoing:
(i) PERITUS may purchase in the aggregate only so much, if any,
of the Chan Stock as exceeds fifteen (15%) percent of all of the capital stock
of PERITUS issued and outstanding, calculated on a fully diluted basis, as of
the date of the death of DOMINIC. For purposes of calculating such fifteen (15%)
percent, all then outstanding options, warrants and other rights to acquire
capital stock of PERITUS shall be deemed to have been exercised as of the date
of DOMINIC's death and all then outstanding securities convertible into or
exchangeable for shares of capital stock of PERITUS shall be deemed to have been
converted or exchanged as of the date of DOMINIC's death.
(ii) Notwithstanding any other provision of this Section 1
except subparagraph (iii) below, if PERITUS elects to purchase any of the Chan
Stock pursuant to this Agreement, PERITUS shall purchase a sufficient number of
shares from each party holding any of the Chan Stock to qualify the purchase of
such stock from each such party as a substantially disproportionate redemption
under Section 302(b)(2) of the Internal Revenue Code of 1986 (as amended), to
reflect the intention of the parties that any such redemption shall be treated
for Federal income tax purposes as a sale or exchange, and not as a dividend.
(iii) Notwithstanding any other provision of this Section 1, no
part of the Chan Stock, if any, which is excluded from the gross estate of
DOMINIC for Federal estate tax purposes shall be purchased by PERITUS unless and
until all of the Chan Stock so included in his gross estate has first been
purchased (whether such stock so included is then held by the Personal
Representative or any other party).
(iv) Subject to the provisions of Section 1(b)(i), 1(b)(ii), and
1(b)(iii), above, any of the Chan Stock which is excluded from the gross estate
of DOMINIC for Federal estate tax purposes may be purchased from such one or
more parties and in such amounts as PERITUS in its sole discretion shall
determine.
2. Exercise of Purchase Option and Closing.
---------------------------------------
(a) PERITUS or its designee may exercise the Purchase Option, if at
all, only by delivering or mailing to the Personal Representative, in accordance
with Section 9, below, a written notice of exercise of the Purchase Option
within sixty (60) days after the appointment of such Personal Representative by
a court of competent jurisdiction. Such notice shall specify the purchase price
per share and the number of shares to be purchased from the said Personal
Representative and from each other party, if any, from whom any of the Chan
Stock is to be purchased. If PERITUS
-2-
<PAGE>
fails for any reason to furnish within the required sixty (60) day period such
written notice to any party holding any of the Chan Stock, all of PERITUS'
rights hereunder with respect to any such stock held by such party shall
thereupon lapse and have no further force or effect.
(b) Within 10 days after receipt of the notice of the exercise of the
Purchase Option pursuant to subsection (a) above, the said Personal
Representative shall tender to PERITUS or its designee, at the address of
PERITUS for notice pursuant to Section 9, below, the certificate or certificates
representing the shares which PERITUS or the designee has elected to purchase,
duly endorsed in blank by the party selling such shares or with duly endorsed
stock powers attached thereto, all in form suitable for the transfer of such
shares. Immediately upon receipt by PERITUS or its designee of such certificate
or certificates from any party selling such shares, PERITUS shall pay by bank
check or wire transfer the entire purchase price for such shares to the party
tendering such shares.
(c) After the date on which any of the Chan Stock is required to be
delivered for transfer pursuant to subsection (b) above, the party selling such
shares shall not be entitled to any dividend on account of such shares or to
exercise any of the privileges or rights of a stockholder with respect to such
shares, and PERITUS or its designee, as the case may be, shall for all purposes
be treated as the owner of such shares.
(d) No fractional shares shall be purchased upon exercise of a
Purchase Option, and any fraction of a share resulting from a computation made
pursuant to Section 1(b)(i) or 1(b)(ii) of this Agreement shall be rounded to
the nearest whole share (with any one-half share being rounded downward).
3. Termination of Agreement. All of the rights and obligations of each
------------------------
party hereunder shall terminate, if not sooner pursuant to the provisions of
Section 2, upon the first to occur of (a) the first firm commitment underwritten
public offering of shares of capital stock of PERITUS pursuant to an effective
registration statement on Form S-1 (or its then equivalent) under the Securities
Act of 1933, as amended, pursuant to which the aggregate price paid by the
public for the shares of capital stock sold in such offering is at least $15
million or (b) on the tenth anniversary of the date of this Agreement.
4. Restrictive Legend. DOMINIC, MARSHA and PERITUS shall cause all
------------------
certificates representing any of the Chan Stock to have affixed thereto a legend
in substantially the following form, in addition to any other legends that may
be required under federal or state securities laws:
-3-
<PAGE>
"The shares of stock represented by this certificate are
subject to an option to purchase set forth in a certain
Stock Purchase Agreement involving the registered owner of
these shares (or his predecessor in interest), and such
Agreement is available for inspection without charge at the
office of the Clerk of the Corporation."
5. Stock Splits, Stock Dividends, and Similar Transactions. If from time
--------------------------------------------------------
to time there is any stock split, stock dividend, stock distribution or other
reclassification of the stock of PERITUS, any and all new, substituted or
additional securities to which any party is entitled by reason of his or her
ownership of any of the Chan Stock shall be immediately subject to the
provisions of this Agreement.
6. No Restrictions on Transfer. Notwithstanding any other provision of
---------------------------
this Agreement, this Agreement shall not restrict in any way the right of
DOMINIC or MARSHA to transfer any shares of capital stock of PERITUS during
DOMINIC's life or, subject to the provisions of Section 2, after his death. In
the event of any such transfer, PERITUS shall cause to be removed the legend
referred to in Section 4 hereof from the certificates evidencing the shares so
transferred. This Agreement shall not amend any other restrictions upon
transfer of the Chan Stock imposed under applicable state or federal laws or any
agreement to which DOMINIC or MARSHA is a party, including without limitation, a
Stock Restriction Agreement of even date herewith among PERITUS, DOMINIC and the
Investors so defined therein.
7. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and each other provision of this Agreement shall be
severable and enforceable to the extent permitted by law.
8. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of PERITUS, DOMINIC, MARSHA and their respective heirs, executors,
administrators, legal representatives, successors and assigns. PERITUS may not
assign any of its rights hereunder or delegate any of its obligations hereunder
without the prior written consent of DOMINIC and MARSHA.
9. Notice. All notices required or permitted hereunder shall be in
------
writing and deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail, postage prepaid,
addressed to the other party hereto at the address shown beneath his or her
respective signature to this Agreement, or at such other address
-4-
<PAGE>
or addresses as either party shall designate in a written notice delivered to
the other parties in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in this
--------
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural, and vice
versa.
11. Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties, and supersedes all prior agreements and understandings,
relating to the subject matter of this Agreement, except any such agreements
------
restricting the transferability of the Chan Stock.
12. Amendment. This Agreement may be amended or modified only by a
---------
written instrument executed by all of the parties.
13. Governing Law. This Agreement shall be construed, interpreted and
-------------
enforced in accordance with the laws of the Commonwealth of Massachusetts.
[Remainder of this page intentionally left blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 15th day of March, 1996.
/s/ Dominic Chan
---------------------
DOMINIC CHAN
1196 North Road
Carlisle, MA 01741
/s/ Marsha C. Chan
---------------------
MARSHA C. CHAN
1196 North Road
Carlisle, MA 01741
PERITUS SOFTWARE SERVICES, INC.
BY: /s/ Allen K. Deary
--------------------
Title: VP Finance
------------------
304 Concord Road
Billerica, MA 01821
-6-
<PAGE>
EXHIBIT 10.18
-------------
NON-COMPETITION AGREEMENT
March 15, 1996
Dominic K. Chan
Peritus Software Services, Inc.
304 Concord Road
Billerica, MA 01821
Dear Mr. Chan:
You are presently employed by Peritus Software Services, Inc., a
Massachusetts corporation (the "Company"). In order to make available working
capital to help ensure its future success, the Company desires to issue and sell
shares of its capital stock to a group of investors (the "Investor Stock") for
approximately $5.5 million pursuant to a Series A Convertible Preferred Stock
and Class A Common Stock Purchase Agreement dated as of the date hereof. The
sale of the Investor Stock is expected to benefit you as a key employee of the
Company since the funds from the sale will enable the Company to strengthen and
expand its business. The obligation of the investors to purchase the Investor
Stock is conditioned upon the execution and delivery by you of this Agreement.
In consideration of your employment by the Company and the purchase by such
investors of the Investor Stock, you hereby covenant and agree with the Company
as follows:
1. The term of this Agreement shall be for a period commencing on the
date hereof and ending on the first anniversary of the date on which your
employment with the Company terminates for any reason, whether voluntary or
involuntary. During the period commencing on the date on which your employment
with the Company terminates, the Company will pay you in quarterly installments
over a period of one (1) year, an aggregate amount not to exceed the amount the
Company paid to you in combined salary and bonus for the twelve (12) month
period immediately preceding the date of termination of your employment with the
Company; provided however, that no amount shall be due from the Company if you
----------------
are in violation of any of the terms of this Agreement.
2. During the term hereof, you will not, without the Company's prior
written consent, directly or indirectly, alone or as a partner, joint venturer,
officer, director, employee, consultant, agent, independent contractor or
stockholder of any company or business, engage in any business activity which is
directly or indirectly in competition in the United States with any of the
products or services being developed, marketed, distributed, planned, sold or
otherwise provided by the Company at such time. The ownership by you of not
more than five percent of the shares of stock of any corporation having a class
of equity securities actively traded on a
<PAGE>
national securities exchange or on the Nasdaq Stock Market held for passive
investment purposes only, shall not be deemed, in and of itself, to violate the
prohibitions of this paragraph.
3. During the term hereof, you will not, directly or indirectly, employ,
solicit or knowingly permit any other company or business organization which is
directly or indirectly controlled by you to employ, any person who is employed
by the Company at any time during the term hereof, or in any manner seek to
induce any such person to leave his or her employment with the Company.
4. You hereby represent that, except as you have disclosed in writing to
the Company, you are not a party to, or bound by the terms of, any agreement
with or obligation to any previous employer or other party to refrain from using
or disclosing any trade secret or confidential or proprietary information in the
course of your employment with the Company or to refrain from competing,
directly or indirectly, with the business of such previous employer or any other
party. You further represent that your performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement or obligation to keep in confidence proprietary information, knowledge
or data acquired by you in confidence or in trust prior to or during your
employment with the Company, and you will not disclose to the Company or induce
the Company to use any confidential or proprietary information or material
belonging to any previous employer or others.
5. You agree that the breach of this Agreement by you will cause
irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of your obligations hereunder.
6. You understand that this Agreement does not create an obligation on
the Company or any other person or entity to continue your employment.
7. Any amendment to or modification of this Agreement, and any waiver of
any provision hereof, shall be in writing. Any waiver by the Company of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach hereof.
8. You hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity or subject so
as to be unenforceable at law, such provision or provisions shall be construed
by the appropriate judicial body by limiting and reducing it or them, so as to
be enforceable to the maximum extent compatible with the applicable law as it
shall then appear.
9. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
<PAGE>
10. The term "Company" shall include Peritus Software Services, Inc. and
any of its subsidiaries, subdivisions or affiliates. The Company shall have the
right to assign this Agreement to its successors and assigns pursuant to a
consolidation or merger of the Company into another company or into or with any
other entity or entities which results in the exchange of outstanding shares of
the Company for securities or other consideration issued or paid or caused to be
issued or paid by any such entity or affiliate thereof, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by said
successors or assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Please indicate your acceptance of the foregoing by signing and returning
one copy to the undersigned.
Very truly yours,
PERITUS SOFTWARE SERVICES, INC.
By:/s/ Allan K. Deary
----------------------------
Title: VP Finance
-------------------------
AGREED TO AND ACCEPTED as of
the date first above written:
/s/ Dominic K. Chan
- -----------------------------
Dominic K. Chan
<PAGE>
EXHIBIT 10.19
-------------
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
between
PERITUS SOFTWARE SERVICES, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of October 28, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I -- THE SHARES................................................................. 1
SECTION 1.01 Issuance, Sale and Delivery of the Shares.................................. 1
SECTION 1.02 Closing.................................................................... 1
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. 2
SECTION 2.01 Organization, Qualifications and Corporate Power........................... 2
SECTION 2.02 Authorization of Agreements, Etc........................................... 3
SECTION 2.03 Validity................................................................... 3
SECTION 2.04 Authorized Capital Stock................................................... 4
SECTION 2.05 Financial Statements....................................................... 5
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet......................... 5
SECTION 2.07 Litigation; Compliance with Law............................................ 5
SECTION 2.08 Proprietary Information of Third Parties................................... 6
SECTION 2.09 Patents, Trademarks, Etc................................................... 7
SECTION 2.10 Title to Properties........................................................ 7
SECTION 2.11 Leasehold Interests........................................................ 7
SECTION 2.12 Insurance.................................................................. 8
SECTION 2.13 Taxes...................................................................... 8
SECTION 2.14 Other Agreements........................................................... 8
SECTION 2.15 Loans and Advances......................................................... 10
SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other Persons............. 10
SECTION 2.17 Significant Customers and Suppliers........................................ 10
SECTION 2.18 Governmental Approvals..................................................... 11
SECTION 2.19 Disclosure................................................................. 11
SECTION 2.20 Offering of the Shares..................................................... 11
SECTION 2.21 Brokers.................................................................... 12
SECTION 2.22 Officers................................................................... 12
SECTION 2.23 Transactions With Affiliates............................................... 12
SECTION 2.24 Employees.................................................................. 12
SECTION 2.25 U.S. Real Property Holding Corporation..................................... 12
SECTION 2.26 Environmental Protection................................................... 13
SECTION 2.27 ERISA...................................................................... 13
SECTION 2.28 Foreign Corrupt Practices Act.............................................. 15
SECTION 2.29 Federal Reserve Regulations................................................ 15
SECTION 2.30 Qualified Small Business Stock............................................. 15
SECTION 2.31 Equal Employment Opportunity............................................... 15
SECTION 2.32 Labor Relations............................................................ 16
ARTICLE III-- REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................... 16
ARTICLE IV -- CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS............................ 17
ARTICLE V -- COVENANTS OF THE COMPANY................................................... 19
SECTION 5.01 Financial Statements, Reports, Etc......................................... 19
SECTION 5.02 Right of Participation..................................................... 20
SECTION 5.03 Reserve for Conversion Shares.............................................. 21
SECTION 5.04 Corporate Existence........................................................ 22
SECTION 5.05 Properties, Business, Insurance............................................ 22
SECTION 5.06 Inspection, Consultation and Advice........................................ 22
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SECTION 5.07 Restrictive Agreements Prohibited.......................................... 23
SECTION 5.08 Transactions with Affiliates............................................... 23
SECTION 5.09 Expenses of Directors...................................................... 23
SECTION 5.10 Use of Proceeds............................................................ 23
SECTION 5.11 Board of Directors Meetings................................................ 23
SECTION 5.12 Compensation Committee..................................................... 23
SECTION 5.13 Charter.................................................................... 24
SECTION 5.14 Performance of Contracts................................................... 24
SECTION 5.15 Employee Nondisclosure and Developments Agreements......................... 24
SECTION 5.16 Activities of Subsidiaries................................................. 24
SECTION 5.17 Compliance with Laws....................................................... 24
SECTION 5.18 Keeping of Records and Books of Account.................................... 24
SECTION 5.19 Change in Nature of Business............................................... 25
SECTION 5.20 U.S. Real Property Interest Statement...................................... 25
SECTION 5.21 International Investment Survey Act of 1976................................ 25
SECTION 5.22 Rule 144A Information...................................................... 25
SECTION 5.23 Advisory Committee......................................................... 26
SECTION 5.24 Qualified Small Business Stock............................................. 26
SECTION 5.25 Equal Employment Opportunity............................................... 26
SECTION 5.26 Status of the Shares as Qualified Investments.............................. 26
SECTION 5.27 Termination of Covenants................................................... 27
ARTICLE VI -- MISCELLANEOUS.............................................................. 27
SECTION 6.01 Expenses................................................................... 27
SECTION 6.02 Survival of Agreements..................................................... 27
SECTION 6.03 Brokerage.................................................................. 27
SECTION 6.04 Parties in Interest........................................................ 28
SECTION 6.05 Notices.................................................................... 28
SECTION 6.06 Governing Law.............................................................. 28
SECTION 6.07 Entire Agreement........................................................... 28
SECTION 6.08 Counterparts............................................................... 28
SECTION 6.11 Amendments................................................................. 28
SECTION 6.12 Severability............................................................... 29
SECTION 6.13 Titles and Subtitles....................................................... 29
SECTION 6.14 Certain Defined Terms...................................................... 29
</TABLE>
-ii-
<PAGE>
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 Amendment
EXHIBIT B Form of Stock Restriction Amendment
EXHIBIT C Charter and All Amendments Thereto
EXHIBIT D Form of Employee Nondisclosure and Developments Agreement
EXHIBIT E Form of Opinion of Hale and Dorr
-iii-
<PAGE>
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of October 28,
1996 between Peritus Software Services, Inc., a Massachusetts corporation (the
"Company"), and the several purchasers named in the attached Schedule I
----------
(individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 1,818,182 shares of the authorized but unissued Series B
Convertible Preferred Stock, no par value, of the Company (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
-----------------------------------------
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
--------
I, at the aggregate purchase price set forth opposite the name of such Purchaser
- -
under the heading "Aggregate Purchase Price for Shares" on Schedule I.
----------
SECTION 1.02 Closing. The closing shall take place at the offices of
-------
Testa, Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, at or about 1:00 p.m., Boston time, on October 28, 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
- ----------
transfer.
<PAGE>
-2-
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
-----------
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.
------------------------------------------------
(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, Amendment No. 1 (the "Registration
Rights Amendment"), in the form attached as Exhibit A hereto, to the
---------
Registration Rights Agreement dated March 15, 1996 among the Company, the
Purchasers and Bull HN Information Systems Inc. ("Bull HN") (as amended by the
Registration Rights Amendment, the "Registration Rights Agreement"), Amendment
No. 1 (the "Stock Restriction Amendment"), in the form attached as Exhibit B
---------
hereto, to the Stock Restriction Agreement dated March 15, 1996 among the
Company, the Purchasers and the other parties thereto (as amended by the Stock
Restriction Amendment, the "Stock Restriction Agreement"), to issue, sell and
deliver the Shares and to issue and deliver the shares of Class A Common Stock
issuable upon conversion of the Series B Convertible Preferred Stock (the
"Conversion Shares").
(b) The attached Schedule III contains a list of all subsidiaries of
------------
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
------------
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
<PAGE>
-3-
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.
--------------------------------
(a) The execution and delivery by the Company of this Agreement, the
Registration Rights Amendment and the Stock Restriction Amendment, 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 Amended and 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
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 B Convertible Preferred 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 and the Stock
Restriction Agreement. The Conversion Shares have been duly reserved for
issuance upon conversion of the Series B 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, which has not been
duly and validly waived.
SECTION 2.03 Validity. This Agreement has been duly executed and
--------
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Registration
Rights Amendment and the Stock Restriction Amendment, 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.
<PAGE>
-4-
SECTION 2.04 Authorized Capital Stock. The authorized capital stock of
------------------------
the Company consists of (i) 3,721,707 shares of Preferred Stock, of which
1,818,182 shares have been designated Series B Convertible Preferred Stock, no
par value, and 1,903,525 shares have been designated Series A Convertible
Preferred Stock, no par value, (ii) 12,474,000 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, 1,903,525 shares
of Series A Convertible Preferred Stock, 5,778,602 shares of Class A Common
Stock and 99,290 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 Series B Convertible
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, 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 C, and all such designations, powers, preferences, rights,
- ---------
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
--------------
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)
--------------
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), the Stock Restriction
Agreement, and the Voting Agreement of the Company and certain of its
stockholders dated as of March 15, 1996 (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
--------------------
Purchasers the audited consolidated balance sheet of the Company and its
subsidiaries as of December 31, 1995, and the related audited 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 September
30, 1996 (the
<PAGE>
-5-
"Balance Sheet") and the related unaudited consolidated statements of income,
stockholders' equity and cash flows of the Company and its subsidiaries for the
nine months ended September 30, 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 September 30, 1996, respectively, and the consolidated results of their
operations and cash flows for the year ended December 31, 1995 and the nine
months ended September 30, 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.
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet. Since
--------------------------------------------------
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 mark, 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,
-------------------------------
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
<PAGE>
-6-
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 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
----------------------------------------
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
------------------------- -----------
and brief description of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
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 mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know
<PAGE>
-7-
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 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
-------------------
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,
- ------------
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
-------------------
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.
<PAGE>
-8-
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 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;
<PAGE>
-9-
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, agreement or
understanding pursuant to which 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").
<PAGE>
-10-
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 or, the Stock Restriction
Agreement, the issuance, sale and delivery of the Shares or, upon conversion of
the Series B 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 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.
<PAGE>
-11-
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 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,
<PAGE>
-12-
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 D (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.
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 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
- ----
<PAGE>
-13-
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 the Employee Retirement Income Security Act of 1974, as
amended ("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 Internal Revenue 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.
<PAGE>
-14-
(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 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.
<PAGE>
-15-
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 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;
<PAGE>
-16-
(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 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
----------------------------
Hale & Dorr, counsel for the Company, an opinion dated the Closing Date, in
form attached as Exhibit E.
---------
<PAGE>
-17-
(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.
(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 $6,000,000.
(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 Clerk or an Assistant Clerk 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 Amendment and the
Stock Restriction Amendment, 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 Amendment and the
Stock Restriction Amendment; (C) that the Charter has
<PAGE>
-18-
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 Amendment or the Stock
Restriction Amendment, 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
(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 Amendment. The Company shall have executed and
-----------------------------
delivered the Registration Rights Amendment.
(h) Stock Restriction Amendment. The Stock Restriction Amendment shall
---------------------------
have been executed and delivered by the Company, Dominic K. Chan and Bull HN.
(i) Charter. The Charter shall read in its entirety as set forth in
-------
Exhibit C.
---------
(j) Employee Agreements. Copies of the Employee Nondisclosure and
-------------------
Developments Agreements executed since March 15, 1996 shall have been made
available to counsel for the Purchasers.
(k) 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.
(l) 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.
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:
<PAGE>
-19-
(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 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 B
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 B 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;
<PAGE>
-20-
(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 5.27 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 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 B 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 or Series B 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 2,835,695 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"), and (G) upon the exercise of any right which was not itself
<PAGE>
-21-
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 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 all
outstanding shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock (together, the "Investor Preferred") 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 Investor Preferred 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 Investor Preferred 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 Investor Preferred.
SECTION 5.04 Corporate Existence. The Company shall maintain and, except
-------------------
as otherwise permitted by Section 5.16 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 Dominic K.
Chan (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 Preferred
<PAGE>
-22-
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 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) working capital, (ii) general corporate
purposes and (iii) 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.
<PAGE>
-23-
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
vote of the holders of the Preferred Stock and the Common Stock, voting together
as a single 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 Dominic K. Chan dated as of March 15, 1996 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 D 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 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.
<PAGE>
-24-
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 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
<PAGE>
-25-
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 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
<PAGE>
-26-
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 745,000 shares of
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 Preferred Stock
(appropriately adjusted to reflect stock splits, stock dividends, combinations
of shares and the like with respect to the 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, Testa, Hurwitz &
Thibeault, in connection with such transactions and any subsequent amendment,
waiver, consent or enforcement thereof, up to a maximum of $15,000.
SECTION 6.02 Survival of Agreements. All covenants, agreements,
----------------------
representations and warranties made herein or in the Registration Rights
Agreement, the Stock Restriction Agreement, or any certificate or instrument
delivered to the Purchasers pursuant to or in connection with this Agreement,
the Registration Rights Agreement or the Stock Restriction Agreement, shall
survive the execution and delivery of this Agreement, the Registration Rights
Amendment and the Stock Restriction Amendment, 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.
<PAGE>
-27-
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 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., 304 Concord
Road, Billerica, Massachusetts 01821, Attention: President, with a copy to
Peter B. Tarr, Esq., Hale and Dorr, 60 State Street, Boston, Massachusetts
02109; and
(b) if to any Purchaser, at the address of such Purchaser set forth in
Schedule I, with a copy to Andrew E. Taylor, Esq., Testa, Hurwitz &
----------
Thibeault, High Street Tower, 125 High Street, Boston, Massachusetts 02110;
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 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 Amendments. Except as set forth in the next sentence, 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 B Convertible Preferred Stock. Article V of this
Agreement (other than provisions specifically setting forth certain powers of
the directors elected solely by holders of Series A Convertible Preferred Stock
(the "Series A Provisions")) may not be amended or modified, and no provisions
thereof 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 Preferred Stock. The Series A
Provisions may not be waived, amended or modified without the written consent of
the Company and the holders of at least two-thirds of the then outstanding
<PAGE>
-28-
shares of Class A Common Stock issued or issuable upon conversion of the Series
A Convertible Preferred Stock.
SECTION 6.10 Waiver and Termination of Certain Provisions of Series A
--------------------------------------------------------
Convertible Preferred Stock Purchase Agreement. The Company and the holders of
- ----------------------------------------------
two-thirds of the outstanding shares of Common Stock issuable upon conversion of
the Series A Convertible Preferred stock hereby agree that effective immediately
prior to the consummation of the Closing, the covenants of the Company in
Article V of the Series A Purchase Agreement shall be terminated in their
entirety, shall be of no further force or effect, and shall be replaced in their
entirety by Article V of this Agreement. The Company, the holders of two-thirds
of the outstanding shares of Common Stock issuable upon conversion of the Series
A Convertible Preferred Stock, MCRC and Bull HN hereby agree that the provisions
of Section 5.02 of the Series A Purchase Agreement and any other rights of first
refusal or preemptive rights held by such parties are hereby waived with respect
to the transactions contemplated herein. The parties hereto agree that solely
for purposes of Article V of this Agreement, the term "Purchasers" shall be
deemed to mean the Purchasers and the holders of the Series A Convertible
Preferred Stock.
SECTION 6.11 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 6.12 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 6.13 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 (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.
<PAGE>
-29-
(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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-31-
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Series B Convertible Preferred Stock Purchase Agreement as of the day and year
first above written.
COMPANY:
PERITUS SOFTWARE SERVICES, INC.
By:/s/ Dominic K. Chan
------------------------------------
Title:
---------------------------------
[Corporate Seal]
Attest:
/s/ Allen Deary
- ----------------------------
Clerk
PURCHASERS:
Y2K Partners, Ltd.
By: JPW Partners, Ltd.
By: Cross Matrix Corp.
By:/s/ John P. Watters
----------------------------
John P. Watters
Essex Special Growth Opportunities Fund L.P.
By: illegible
------------------------------------
Title:
---------------------------------
<PAGE>
-32-
Essex High Technology Fund L.P.
By: illegible
------------------------------------
Title:
---------------------------------
One & Co.
By: illegible
------------------------------------
Title:
---------------------------------
/s/ Mr. Francis W. Hatch
---------------------------------------
Mr. Francis W. Hatch
/s/ Ms. Serena M. Hatch
---------------------------------------
Ms. Serena M. Hatch
G.W. Merck Trust Under Indenture F/B/O/
Serena M. Hatch
By: /s/ Francis W. Hatch
------------------------------------
Title: Trustee
---------------------------------
The John Merck Fund
By: /s/ Francis W. Hatch
------------------------------------
Title: Trustee
---------------------------------
The GBC North American Growth Fund Inc.
By: illegible
------------------------------------
Title:
---------------------------------
<PAGE>
-33-
The Palmer Organization III L.P.
By: Palmer Partners L.P., its general partner
By: /s/ William Congleton
--------------------------------
Title:
-----------------------------
Saturn & Co.
By: illegible
------------------------------------
Title:
---------------------------------
/s/ Reed E. Johnstone
---------------------------------------
Reed E. Johnstone
/s/ Brent P. Johnstone
---------------------------------------
Brent P. Johnstone
/s/ Ralph E. Stoddard
---------------------------------------
Ralph E. Stoddard
Doctor Sweeney & Nessa Profit Sharing Plan
u/a Trust dtd 10-1-85 FBO Doctor Gerald A.
Sweeney
By: /s/ Gerald A. Sweeny
------------------------------------
Title: Trustee
---------------------------------
/s/ David McNeish
---------------------------------------
David McNeish
/s/ Harold F. Close, Jr.
---------------------------------------
Harold F. Close, Jr.
/s/ Axel Lebois
---------------------------------------
Axel Lebois
<PAGE>
-34-
Lindholm Family Partnership
By: /s/ Carl Lindholm
------------------------------------
Title:
----------------------------------
/s/ Louise Lindholm
----------------------------------------
Mrs. Louise Lindholm
/s/ Jeffrey Lindholm
----------------------------------------
Mr. Jeffrey Lindholm
/s/ Jeffrey Lindholm
----------------------------------------
Mrs. Jeffrey Lindholm
/s/ Arthur Carr
----------------------------------------
Arthur Carr
/s/ Virginia L. Carr
----------------------------------------
Virginia L. Carr
First Stevenson Charitable Remainder Unitrust
By: /s/ Roger L. Duval
-----------------------------------
Roger L. Duval, Trustee
/s/ Roger L. Duval
--------------------------------------
Roger L. Duval
<PAGE>
-35-
For purposes of Section 6.10 only:
MATRIX PARTNERS IV, L.P.
By: /s/ W. Michael Humphreys
-------------------------------------
Name: W. Michael Humphreys
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. Michael Humphreys
-------------------------------------
Name: W. Michael Humphreys
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/ Henry McCance
-----------------------------------
General Partner
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By: /s/ Ben Bailey III
-----------------------------------
Title:__________________________________
<PAGE>
-36-
/s/ Ms. Wendy Caplan
----------------------------------------
Ms. Wendy Caplan
/s/ Mr. Thomas Deary
----------------------------------------
Mr. Thomas Deary
/s/ Ms. Therese Deary
----------------------------------------
Ms. Therese Deary
/s/ Mr. James Carroll
----------------------------------------
Mr. James Carroll
/s/ Ms. Mary Carroll
----------------------------------------
Ms. Mary Carroll
/s/ Mr. Arthur Carr
----------------------------------------
Mr. Arthur Carr
/s/ Mr. Michael Deary
----------------------------------------
Mr. Michael Deary
/s/ Ms. Lauri Deary
----------------------------------------
Ms. Lauri Deary
<PAGE>
SCHEDULE I
----------
Purchasers
----------
<TABLE>
<CAPTION>
Aggregate Number of
Series B Convertible
Name and Preferred Stock Shares
Address of Purchaser to be Purchased Purchase Price
- -------------------- -------------- --------------
<S> <C> <C>
Y2K Partners, Ltd. 606,061 2,000,001.30
c/o EFO Holdings, Inc.
1111 West Mockingbird Lane
Suite 1400
Dallas, TX 75247
Attn: John P. Watters
Essex Special Growth 234,848 $ 774,998.40
Opportunities Fund L.P.
125 High St.
29th Floor
Boston, MA 02110-2702
Attn: Susan Stickells
Essex High Technology Fund 75,758 $ 250,001.40
L.P.
125 High St.
29th Floor
Boston, MA 02110-2702
Attn: Susan Stickells
One & Co. 187,897 $ 620,060.10
c/o Welch & Forbes
45 School St.
Boston, MA 02108
Attn: John K. Spring
Mr. Francis W. Hatch 10,600 $ 34,980.00
c/o Denise Cronin
Fiduciary Trust Company
175 Federal Street
Boston, MA 02110
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of
Series B Convertible
Name and Preferred Stock Shares
Address of Purchaser to be Purchased Purchase Price
- -------------------- -------------- --------------
<S> <C> <C>
Ms. Serena M. Hatch 10,600 $ 34,980.00
c/o Denise Cronin
Fiduciary Trust Company
175 Federal Street
Boston, MA 02110
G.W. Merck Trust Under 30,300 $ 99,990.00
Indenture F/B/O Serena M. Hatch
c/o Denise Cronin
Fiduciary Trust Company
175 Federal Street
Boston, MA 02110
The John Merck Fund 30,300 $ 99,990.00
c/o Francis W. Hatch
11 Beacon Street, Suite 1230
Boston, MA 02108
The GBC North American 151,515 $ 499,999.50
Growth Fund Inc.
c/o Pembroke Management Ltd.
1010 Sherbrooke St. W.
Suite 818
Montreal, Quebec H3A 2R7
The Palmer Organization III L.P. 151,515 $ 499,999.50
c/o Palmer Partners
300 Unicorn Park Drive
Woburn, MA 01801
Saturn & Co. 151,515 $ 499,999.50
c/o William Corson
Investors Bank & Trust
Company
89 South Street
Boston, MA 02111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of
Series B Convertible
Name and Preferred Stock Shares
Address of Purchaser to be Purchased Purchase Price
- -------------------- -------------- --------------
<S> <C> <C>
Reed E. Johnstone 15,152 $ 50,001.60
c/o Bruce Johnstone
827 Charles River St.
Needham, MA 02192
Brent P. Johnstone 15,151 $ 49,998.30
c/o Bruce Johnstone
827 Charles River St.
Needham, MA 02192
Ralph E. Stoddard 15,152 $ 50,001.60
2 Deepwoods Drive
Needham, MA 02192
Doctor Sweeney & Nessa Profit 15,152 $ 50,001.60
Sharing Plan
u/a Trust dtd 10-1-85 FBO Doctor
Gerald A. Sweeney
c/o Gerald Sweeney, M.D.
1 Brookline Place
Suite 305
Brookline, MA 02146
David McNeish 15,152 $ 50,001.60
7 Algonquin Drive
South Natick, MA 01760-6094
Harold F. Close, Jr 7,576 $ 25,000.80
73 Leeuwarden Rd.
Darien, CT 06820-3825
Axel Leblois 8,000 $ 26,400.00
The World Times
210 World Trade Center
Boston, MA 02210
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of
Series B Convertible
Name and Preferred Stock Shares
Address of Purchaser to be Purchased Purchase Price
- -------------------- -------------- --------------
<S> <C> <C>
Lindholm Family Partnership 10,000 $ 33,000.00
c/o Mr. Carl Lindholm
6240 Kipps Colony Court
Unit 205
Gulfport, FL 33707
Mrs. Louise Lindholm 10,000 $ 33,000.00
6240 Kipps Colony Court
Unit 205
Gulfport, FL 33707
Mr. and Mrs. Jeffrey Lindholm 6,000 $ 19,800.00
2 Gina Drive
Hopkington, MA 01748
Virginia L. Carr 10,000 $ 33,000.00
44 Donnelly Drive
Dover, MA 02030
Art Carr 10,000 $ 33,000.00
44 Donnelly Drive
Dover, MA 02030
First Stevenson Charitable 30,303 $ 99,999.90
Remainder Trust
Roger L. Duval, Trustee
27313 Southfield
Lathrup Village, MI 48076
Roger L. Duval 9,635 $ 31,795.50
27313 Southfield
Lathrup Village, MI 48076
------------- -------------
Total 1,818,182 $6,000,000.40
</TABLE>
<PAGE>
Exhibit 10.20
PERITUS SOFTWARE SERVICES, INC.
EMPLOYMENT AGREEMENT
Agreement made as of the 30/th/ day of December, 1996 (the "Effective
Date"), by and between Peritus Software Services, Inc., a Massachusetts
corporation (the "Company"), and Douglas Catalano (the "Employee").
The Company desires to employ the Employee, and the Employee desires
to be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
I. Titles and Reporting Responsibility
-----------------------------------
The Employee's title will be President and Chief Operating Officer. The
Employee will report to the Chief Executive Officer.
The Chairman of the Company agrees to nominate the Employee as a candidate
for election to the Board of Directors.
II. Term of Employment
------------------
The Company hereby agrees to employ the Employee and the Employee hereby
accepts employment with the Company for a period (the "Employment Period")
commencing on December 30, 1996 and
- --------------------------------------------------------------------------------
-1-
<PAGE>
ending upon the termination of the Employee's employment pursuant to the
provisions of Section VII below. This Agreement shall remain in full force and
effect unless and until terminated in accordance with Section VII of this
Agreement.
III. Responsibilities of the Employee
--------------------------------
The Employee agrees to undertake the duties and responsibilities
inherent in the position described in Section I above and such other duties and
responsibilities as the Company or its designee shall from time to time
reasonably assign. The Employee agrees to devote his entire business time,
attention and energies to the business and interests of the Company during the
term of this Agreement. The Employee agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any changes
therein which may be adopted from time to time by the Company.
IV. Support from the Company
------------------------
The Company will reimburse the Employee for all reasonable travel and
other business expenses incurred in furthering the business of the Company.
Expenditures of an extraordinary nature shall require prior written approval of
the Company.
V. Prohibitions
------------
During the term of this Agreement, the Employee shall not:
- --------------------------------------------------------------------------------
-2-
<PAGE>
(a) be employed by or otherwise represent any other company, product,
service or enterprise, without the prior written approval of the
Company; or
(b) make any representation, guarantee, or statement, orally or in
writing, which would contravene any Company policy or compromise the
Company's interests.
VI. Compensation
------------
(a) The Employee shall be paid a base salary (the "Base Salary") and,
when appropriate, bonuses ("Bonus Compensation") as described in this
Section VI. The Employee's bi-weekly Base Salary shall be $9,615.39,
which is the equivalent of $250,000 per year. Provided neither party
has exercised the right to terminate this Agreement under Section VII,
performance and compensation reviews will be conducted annually
beginning December 30, 1997.
(b) Bonus Compensation may be paid from time to time to the Employee
as approved by the Board of Directors of the Company, by a Committee
of the Board of Directors of the Company which has the authority to
determine the applicable bonus compensation or by a designee of the
Board of Directors who has been granted
- --------------------------------------------------------------------------------
-3-
<PAGE>
the authority to determine the applicable bonus compensation.
(c) Except as otherwise provided, the Employee shall be entitled to
participate in any and all benefit programs that the Company
establishes and makes generally available to its employees for which
he may be eligible under plan documents. In any case where
contributions or benefits related to participation in a plan vary on
the basis of compensation, "compensation" shall mean Employee's Base
Salary only and shall not include expense reimbursements, advances,
Bonus Compensation or any other compensation which may be paid by the
Company. The Employee shall be entitled to three weeks paid vacation
per year, to be taken at such times as may be approved by the Chief
Executive Officer.
(d) Any future revisions to Base Salary or Bonus Compensation may be
implemented by the Board of Directors of the Company, by a Committee
of the Board of Directors of the Company which has the authority to
determine the applicable bonus compensation or base salary or by a
designee of the Board of Directors who has been granted the authority
to determine the
- --------------------------------------------------------------------------------
-4-
<PAGE>
applicable bonus compensation or base salary.
(e) During the period beginning on the Employee's date of employment
and ending on the 30th day thereafter, the Employee shall be entitled
to purchase up to $500,000 worth of Class A Voting Common Stock, no
par value (the "Common Stock"), of the Company at a price per share
equal to the fair market value of a share of Common Stock on the date
of purchase. As a condition of purchase the Grantor shall deliver to
the Company an investment letter signed by the Employee in
substantially the form as set forth in Exhibit A.
(f) The Employee shall receive the stock option grants as set forth
in Exhibit B and C, subject to necessary approvals by the Company's
Board of Directors, by a Committee of the Board of Directors of the
Company which has the authority to approve said option grants, and/or
the shareholders of the Company.
VII. Termination
-----------
The employment of the Employee by the Company pursuant to this Agreement
shall terminate:
(a) By either party, without cause, by giving 45 days
- --------------------------------------------------------------------------------
-5-
<PAGE>
prior written notice of termination to the other party, or within such
shorter period as is established by mutual agreement of the parties.
The Company reserves the right to provide Base Salary payments in lieu
of the 45 days notice.
(b) By either party, if the other party breaches any of its
obligations under this Agreement and fails to remedy such breach
within 30 days after written notice of such breach is provided to such
other party; failure of the Employee to adequately perform the
responsibilities specified in Section III hereof shall be considered a
breach of this Agreement.
(c) By the Company, effective immediately and without notice, for
cause. For purposes of this Section VII(c), "cause" for termination
shall be deemed to exist upon (a) a good faith finding by the Company
of the failure of the Employee to perform his assigned duties for the
Company, dishonesty, gross negligence or misconduct, or (b) the
conviction of the Employee of, or the entry of a pleading of guilty or
nolo contendere by the Employee to, any crime involving moral
turpitude or any felony.
- --------------------------------------------------------------------------------
-6-
<PAGE>
(d) Upon the death or disability of the Employee. As used in this
Agreement, the term "disability" shall mean the inability of the
Employee, due to a physical or mental disability, to perform the
essential functions of his/her job with or without a reasonable
accommodation.
VIII. Rights Following Termination
----------------------------
(a) Following termination of this Agreement, pursuant to Section
VII(b), VII(c), VII(d), or at the option of the Employee pursuant to
Section VII(a), the Company shall have no further responsibility to
Employee except to pay Base Salary up to and including the last day of
employment.
(b) Following termination of this Agreement, at the option of the
Company pursuant to Section VII(a), the Company shall continue to pay
to the Employee the Base Salary which would otherwise be payable to
the Employee for a period of 52 weeks from the date of termination of
employment (the "Severance Period"). The Employee shall be deemed to
be an employee during the Severance Period for eligibility for
benefits to the extent allowable by law. The Employee shall not be
eligible to receive the payments provided for under this Section
- --------------------------------------------------------------------------------
-7-
<PAGE>
VII(b) or the additional vesting provided for in Exhibit B and Exhibit
C unless and until the Employee signs a release in the form attached
hereto as Exhibit D.
(c) In the event of termination or expiration of this Agreement,
Employee shall, at the instruction of the Company, promptly return to
the Company or its designee all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, program
listings, or other written, photographic, or other tangible material
supplied by the Company to the Employee or created or maintained for
the Company by the Employee.
(d) Except as set forth above, neither party shall be entitled to any
compensation or claim for goodwill or other loss, suffered by reason
or termination of this Agreement.
(e) The rights and obligations of the parties to this Agreement set
forth in Section VIII and Section IX shall survive any termination of
this Agreement. The termination or expiration of this Agreement shall
in no case relieve either party from its obligations to pay
- --------------------------------------------------------------------------------
-8-
<PAGE>
to the other any monies accrued hereunder prior to such termination or
expiration.
IX. Non-Compete.
-----------
(a) During the Employment Period and for a period of one year after
the termination or expiration thereof, the Employee will not directly
or indirectly:
(i) as an individual, proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, or in any other
capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held
company), engage in the business of developing, producing, marketing
or selling products of the kind or type developed or being developed,
produced, marketed or sold by the Company or any subsidiary of the
Company while the Employee was employed by the Company, provided that
the foregoing restriction shall not apply after the end of the
Employment Period to activities that are not related to the Company's
Year 2000 business activities; or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment
with, or otherwise cease their relationship with, the Company; or
- --------------------------------------------------------------------------------
-9-
<PAGE>
(iii) solicit, divert or take away, or attempt to divert or to
take away, the business or patronage of any of the clients, customers
or accounts, or prospective clients, customers or accounts, of the
Company which were contacted, solicited or served by the Employee
while employed by the Company.
(b) If any restriction set forth in this Section IX is found by any
court of competent jurisdiction to be unenforceable because it extends
for too long a period of time or over too great a range of activities
or in too broad a geographic area, it shall be interpreted to extend
only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
(c) The restrictions contained in this Section IX are necessary for
the protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The
Employee agrees that any breach of this Section IX will cause the
Company substantial and irrevocable damage and therefore, in the event
of any such breach, in addition to such other remedies which may be
available, the Company shall have the right to seek specific
- --------------------------------------------------------------------------------
-10-
<PAGE>
performance and injunctive relief.
X. Other Agreements
----------------
Employee represents that his performance of all the terms of this Agreement
and as an employee of the Company does not and will not breach any employment
agreement with any previous employer or any agreement with any previous employer
or other party to keep in confidence proprietary information, knowledge or data
acquired by him in accordance or in trust prior to his employment with the
Company or to refrain from competing, directly or indirectly, with the business
of such previous employer or any other party. Employee represents that he will
be able to complete Form I-9 upon commencement of employment. Employee agrees to
execute the Company's standard confidentiality and nondisclosure agreement as
set forth in Exhibit E, and to the extent that the terms as set forth in Exhibit
E are contrary to the terms of this Agreement, this Agreement shall control and
take precedence.
XI. Notices
-------
All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered in person or, if mailed, when mailed by certified or registered mail,
postage prepaid, to the parties at the addresses set forth below their
signatures to this
- --------------------------------------------------------------------------------
-11-
<PAGE>
Agreement or at such other address as may be given in writing by either party to
the other party in accordance with this Section XI.
XII. Assignability
-------------
Employee acknowledges that the Company is entering into this Agreement in
reliance upon the personal reputation, qualifications and abilities of the
Employee and accordingly, the Employee may not assign his rights or obligations
under this Agreement, either voluntarily or by operation of law.
XII. Miscellaneous
-------------
(a) This Agreement shall not be binding upon the Company until it has
been executed by a duly authorized officer of the Company.
(b) This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts.
(c) This Agreement constitutes the entire understanding between the
parties relating to the subject matter of this Agreement and
supersedes all prior writings, negotiations or understandings with
respect thereto. No modification or addition to this
- --------------------------------------------------------------------------------
-12-
<PAGE>
Agreement shall have any effect unless it is set forth in writing and
signed by both parties.
(d) The waiver by the Company of any breach of any provision of this
Agreement shall not be construed as a continuing waiver of such breach
or as a waiver of other breaches of the same or of other provisions of
this Agreement.
(e) Should any provision of this Agreement be declared or be
determined by any court of competent jurisdiction to be illegal or
invalid, the validity of the remaining parts, terms, or provisions
shall not be affected thereby and said illegal and invalid part, term
or provision shall be deemed not to be a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
By: /s/ Douglas Catalano By: /s/ Dominic Chan
------------------------- -------------------------
Douglas Catalano Dominic Chan
14 Rust Way President & C.E.O.
Cohasset, MA 02025 Peritus Software Services, Inc
304 Concord Rd.
Billerica, MA 01821
Date: 12/30/96 Date: 12/30/96
- --------------------------------------------------------------------------------
-13-
<PAGE>
RELEASE
1. Release. In consideration of the payment to me of the severance benefit
-------
provided to me under a certain employment contract between Peritus Software
Services, Inc., a Massachusetts Corporation (the "Company"), I hereby fully,
forever, irrevocably and unconditionally release, remise and discharge the
Company, and any subsidiary or affiliated organization of the Company or their
current or former officers, directors, stockholders, corporate affiliates,
attorneys, agents and employees (the "Released Parties") from any and all
claims, charges, complaints, demands, actions, causes of action, suits, rights,
debts, sums of money, costs, accounts, reckonings, covenants, contracts,
agreements, promises, doings, omissions, damages, executions, obligations,
liabilities, and expenses (including attorneys' fees and costs), of every kind
and nature, known or unknown, which I ever had or now have against the Released
Parties, including, but not limited to, all claims arising out of my employment,
all claims arising out of your separation from employment, all claims arising
from any failure to reemploy you, all claims of race, sex, national origin,
handicap, religious, sexual preference, benefit and age discrimination, all
employment discrimination claims under Title VII of the Civil Rights Act of
1964, 42 U.S.C. (S)2000 et seq., the Age Discrimination in Employment Act, 29
------
U.S.C. (S)621 et seq., the Americans with Disabilities Act of 1990, 29 U.S.C.
------
(S)12101 et seq., the Employee Retirement Income Security Act of 1974, 29 U.S.C.
------
(S)1001 et seq., and similar state or local statutes, wrongful discharge claims,
------
common law tort, defamation, breach of contract and other common law claims, and
any claims under any other federal, state or local statutes or ordinances not
expressly referenced above.
2. Entire Agreement and Applicable Law. This Agreement contains and
-----------------------------------
constitutes the entire understanding and agreement between the parties hereto
with respect to the purchase price for your Company Stock and settlement of
claims against the Company and cancels all previous oral and written
negotiations, agreements, commitments, and writings in connection therewith.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts to the extent not preempted by federal law.
3. Acknowledgments. I acknowledge that I have been given at least twenty-one
---------------
(21) days to consider this Agreement and that the Company advised me to consult
with any attorney of my own choosing prior to signing this Agreement. I
acknowledge that I may revoke this Agreement for a period of seven (7) days
after signing it, and the Agreement shall not be effective or enforceable until
the expiration of this seven (7) day revocation period.
Date:_______________________ Employee's Signature:___________________
Employee's Name:________________________
(type or print)
<PAGE>
EXHIBIT 10.21
-------------
PERITUS SOFTWARE SERVICES, INC.
EMPLOYMENT AGREEMENT
Agreement made as of the 27/th/ day of January, 1997 (the "Effective
Date"), by and between Peritus Software Services, Inc., a Massachusetts
corporation (the "Company"), and Robert D. Savoia (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
I. Titles and Reporting Responsibility
-----------------------------------
The Employee's title will be Vice-President. The Employee will report
to the President.
II. Term of Employment
------------------
The Company hereby agrees to employ the Employee and the Employee hereby
accepts employment with the Company for a period (the "Employment Period")
commencing on January 27/th/, 1997 and ending upon the termination of the
Employee's employment pursuant to the provisions of Section VII below. This
Agreement shall remain in full force and effect unless and until terminated in
- --------------------------------------------------------------------------------
-1-
<PAGE>
accordance with Section VII of this Agreement.
III. Responsibilities of the Employee
--------------------------------
The Employee agrees to undertake the duties and responsibilities
inherent in the position described in Section I above and such other duties and
responsibilities as the Company or its designee shall from time to time
reasonably assign. The Employee agrees to devote his entire business time,
attention and energies to the business and interests of the Company during the
term of this Agreement with the exception of existing non-competing advisory
board of director-level relationships, provided that such relationships are
fully disclosed to Peritus. The Employee agrees to abide by the rules,
regulations, instructions, personnel practices and policies of the Company and
any changes therein which may be adopted from time to time by the Company.
IV. Support from the Company
------------------------
The Company will reimburse the Employee for all reasonable travel and other
business expenses incurred in furthering the business of the Company.
Expenditures of an extraordinary nature shall require prior written approval of
the Company.
V. Prohibitions
------------
During the term of this Agreement, the Employee shall not:
- --------------------------------------------------------------------------------
-2-
<PAGE>
(a) be employed by or otherwise represent any other company, product,
service or enterprise, without the prior written approval of the
Company; or
(b) make any representation, guarantee, or statement, orally or in
writing, which would contravene any Company policy or compromise the
Company's interests.
VI. Compensation
------------
(a) The Employee shall be paid a base salary (the "Base Salary") and,
when appropriate, bonuses ("Bonus Compensation") as described in this
Section VI. The Employee's bi-weekly Base Salary shall be $7,692.31,
which is the equivalent of $200,000 per year. Provided neither party
has exercised the right to terminate this Agreement under Section VII,
performance and compensation reviews will be conducted annually
beginning January 27/th/, 1997.
(b) Bonus Compensation may be paid from time to time to the Employee
as approved by the Board of Directors of the Company, by a Committee
of the Board of Directors of the Company which has the authority to
determine the applicable bonus compensation or by a designee of the
Board of Directors who has been granted
- --------------------------------------------------------------------------------
-3-
<PAGE>
the authority to determine the applicable bonus compensation.
(c) Except as otherwise provided, the Employee shall be entitled to
participate in any and all benefit programs that the Company
establishes and makes generally available to its employees for which
he may be eligible under plan documents. In any case where
contributions or benefits related to participation in a plan vary on
the basis of compensation, "compensation" shall mean Employee's Base
Salary only and shall not include expense reimbursements, advances,
Bonus Compensation or any other compensation which may be paid by the
Company. The Employee shall be entitled to three weeks paid vacation
per year, to be taken at such times as may be approved by the
President.
(d) Any future revisions to Base Salary or Bonus Compensation may be
implemented by the Board of Directors of the Company, by a Committee
of the Board of Directors of the Company which has the authority to
determine the applicable bonus compensation or base salary or by a
designee of the Board of Directors who has been granted the authority
to determine the applicable bonus compensation or base salary.
- --------------------------------------------------------------------------------
-4-
<PAGE>
VII. Termination
-----------
The employment of the Employee by the Company pursuant to this Agreement
shall terminate:
(a) By either party, without cause, by giving 45 days prior written
notice of termination to the other party, or within such shorter
period as is established by mutual agreement of the parties. The
Company reserves the right to provide Base Salary payments in lieu of
the 45 days notice.
(b) By either party, if the other party breaches any of its
obligations under this Agreement and fails to remedy such breach
within 30 days after written notice of such breach is provided to such
other party; failure of the Employee to adequately perform the
responsibilities specified in Section III hereof shall be considered a
breach of this Agreement.
(c) By the Company, effective immediately and without notice, for
cause. For purposes of this Section VII(c), "cause" for termination
shall be deemed to exist upon (a) a good faith finding by the Company
of the failure of the Employee to perform his assigned
- --------------------------------------------------------------------------------
-5-
<PAGE>
duties for the Company, dishonesty, gross negligence or misconduct, or
(b) the conviction of the Employee of, or the entry of a pleading of
guilty or nolo contendere by the Employee to, any crime involving
moral turpitude or any felony.
(d) Upon the death or disability of the Employee. As used in this
Agreement, the term "disability" shall mean the inability of the
Employee, due to a physical or mental disability, to perform the
essential functions of his/her job with or without a reasonable
accommodation.
VIII. Rights Following Termination
----------------------------
(a) Following termination of this Agreement, pursuant to Section
VII(b), VII(c), VII(d), or at the option of the Employee pursuant to
Section VII(a), the Company shall have no further responsibility to
Employee except to pay Base Salary up to and including the last day of
employment.
(b) Following termination of this Agreement, at the option of the
Company pursuant to Section VII(a), the Company shall continue to pay
to the Employee the Base Salary which would otherwise be payable to
the Employee for a period of 52 weeks from the date of termination of
employment (the "Severance Period"), and further,
- --------------------------------------------------------------------------------
-6-
<PAGE>
any options for the purchase of shares of Class A Voting Common Stock
(the "Shares") of the Company granted to Employee within six months of
the Effective Date shall become exercisable as to that number of
Shares which would have become exercisable if the Employee's
employment had terminated one year after the actual date of
termination of employment (the "Acceleration of Options"). The
Employee shall be deemed to be an employee during the Severance Period
for eligibility for benefits to the extent allowable by law. The
Employee shall not be eligible to receive the payments, benefits or
the Acceleration of Options provided for under this Section VIII(b)
unless and until the Employee signs a release in the form attached
hereto as Exhibit A.
(c) In the event of termination or expiration of this Agreement,
Employee shall, at the instruction of the Company, promptly return to
the Company or its designee all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, program
listings, or other written, photographic, or other tangible material
supplied by the Company to the Employee or created or maintained for
the Company by the Employee.
(d) Except as set forth above, neither party shall be entitled to any
compensation or claim for goodwill or other loss, suffered by reason
or termination of this
- --------------------------------------------------------------------------------
-7-
<PAGE>
Agreement.
(e) The rights and obligations of the parties to this Agreement set
forth in Section VIII and Section IX shall survive any termination of
this Agreement. The termination or expiration of this Agreement shall
in no case relieve either party from its obligations to pay to the
other any monies accrued hereunder prior to such termination or
expiration.
IX. Non-Compete.
-----------
(a) During the Employment Period and for a period of one year after
the termination or expiration thereof, the Employee will not directly
or indirectly:
(i) as an individual, proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, or in
any other capacity whatsoever (other than as the holder of not more
than one percent (1%) of the total outstanding stock of a publicly
held company), engage in the business of developing, producing,
marketing or selling products of the kind or type developed or being
developed, produced, marketed or sold by the Company or any subsidiary
of the Company while the Employee was employed by the Company,
provided that the foregoing
- --------------------------------------------------------------------------------
-8-
<PAGE>
restriction shall not apply after the end of the Employment Period to
activities that are not related to the Company's Year 2000 business
activities; or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment
with, or otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or to
take away, the business or patronage of any of the clients, customers
or accounts, or prospective clients, customers or accounts, of the
Company which were contacted, solicited or served by the Employee
while employed by the Company.
(b) If any restriction set forth in this Section IX is found by any
court of competent jurisdiction to be unenforceable because it extends
for too long a period of time or over too great a range of activities
or in too broad a geographic area, it shall be interpreted to extend
only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
(c) The restrictions contained in this Section IX are necessary for
the protection of the business and
- --------------------------------------------------------------------------------
-9-
<PAGE>
goodwill of the Company and are considered by the Employee to be
reasonable for such purpose. The Employee agrees that any breach of
this Section IX will cause the Company substantial and irrevocable
damage and therefore, in the event of any such breach, in addition to
such other remedies which may be available, the Company shall have the
right to seek specific performance and injunctive relief.
X. Other Agreements
----------------
Employee represents that his performance of all the terms of this Agreement
and as an employee of the Company does not and will not breach any employment
agreement with any previous employer or any agreement with any previous employer
or other party to keep in confidence proprietary information, knowledge or data
acquired by him in accordance or in trust prior to his employment with the
Company or to refrain from competing, directly or indirectly, with the business
of such previous employer or any other party. Employee represents that he will
be able to complete Form I-9 upon commencement of employment.
XI. Notices
-------
All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered in person or, if mailed, when
- --------------------------------------------------------------------------------
-10-
<PAGE>
mailed by certified or registered mail, postage prepaid, to the parties at the
addresses set forth below their signatures to this Agreement or at such other
address as may be given in writing by either party to the other party in
accordance with this Section XI.
XII. Assignability
-------------
Employee acknowledges that the Company is entering into this Agreement in
reliance upon the personal reputation, qualifications and abilities of the
Employee and accordingly, the Employee may not assign his rights or obligations
under this Agreement, either voluntarily or by operation of law.
XII. Miscellaneous
-------------
(a) This Agreement shall not be binding upon the Company until it has
been executed by a duly authorized officer of the Company.
(b) This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts.
(c) This Agreement constitutes the entire understanding between the
parties relating to the subject matter of this Agreement and
supersedes all
- --------------------------------------------------------------------------------
-11-
<PAGE>
prior writings, negotiations or understandings with respect thereto.
No modification or addition to this Agreement shall have any effect
unless it is set forth in writing and signed by both parties.
(d) The waiver by the Company of any breach of any provision of this
Agreement shall not be construed as a continuing waiver of such breach
or as a waiver of other breaches of the same or of other provisions of
this Agreement.
(e) Should any provision of this Agreement be declared or be
determined by any court of competent jurisdiction to be illegal or
invalid, the validity of the remaining parts, terms, or provisions
shall not be affected thereby and said illegal and invalid part, term
or provision shall be deemed not to be a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
By: /s/ Robert D. Savoia By: /s/ Douglas Catalano
------------------------- ---------------------------
Robert D. Savoia Douglas Catalano
64 Fairway Circle President
Natick, MA 01760 Peritus Software Services, Inc
304 Concord Rd.
Billerica, MA 01821
- --------------------------------------------------------------------------------
-12-
<PAGE>
Date: January 27/th/, 1997 Date: January 27/th/, 1997
- --------------------------------------------------------------------------------
-13-
<PAGE>
EXHIBIT A
---------
RELEASE
1. Release. In consideration of the payment to me of the severance benefit
-------
provided to me under a certain employment contract between Peritus Software
Services, Inc., a Massachusetts Corporation (the "Company"), I hereby fully,
forever, irrevocably and unconditionally release, remise and discharge the
Company, and any subsidiary or affiliated organization of the Company or their
current or former officers, directors, stockholders, corporate affiliates,
attorneys, agents and employees (the "Released Parties") from any and all
claims, charges, complaints, demands, actions, causes of action, suits, rights,
debts, sums of money, costs, accounts, reckonings, covenants, contracts,
agreements, promises, doings, omissions, damages, executions, obligations,
liabilities, and expenses (including attorneys' fees and costs), of every kind
and nature, known or unknown, which I ever had or now have against the Released
Parties, including, but not limited to, all claims arising out of my employment,
all claims arising out of your separation from employment, all claims arising
from any failure to reemploy you, all claims of race, sex, national origin,
handicap, religious, sexual preference, benefit and age discrimination, all
employment discrimination claims under Title VII of the Civil Rights Act of
1964, 42 U.S.C. (S)2000 et seq., the Age Discrimination in Employment Act, 29
------
U.S.C. (S)621 et seq., the Americans with Disabilities Act of 1990, 29 U.S.C.
------
(S)12101 et seq., the Employee Retirement Income Security Act of 1974, 29 U.S.C.
------
(S)1001 et seq., and similar state or local statutes, wrongful discharge claims,
------
common law tort, defamation, breach of contract and other common law claims, and
any claims under any other federal, state or local statutes or ordinances not
expressly referenced above.
2. Entire Agreement and Applicable Law. This Agreement contains and
-----------------------------------
constitutes the entire understanding and agreement between the parties hereto
with respect to the purchase price for your Company Stock and settlement of
claims against the Company and cancels all previous oral and written
negotiations, agreements, commitments, and writings in connection therewith.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts to the extent not preempted by federal law.
3. Acknowledgments. I acknowledge that I have been given at least twenty-one
---------------
(21) days to consider this Agreement and that the Company advised me to consult
with any attorney of my own choosing prior to signing this Agreement. I
acknowledge that I may revoke this Agreement for a period of seven (7) days
after signing it, and the Agreement shall not be effective or enforceable until
the expiration of this seven (7) day revocation period.
Date:_____________________ Employee's Signature:___________________
Employee's Name:________________________
(type or print)
<PAGE>
EXHIBIT 10.22
August 15, 1996
Mr. Leonard Miller
158 Monroe Avenue
Belle Mead, New Jersey 08502
Re: Employment of Len Miller by Peritus Software Services, Inc.
Dear Len:
This letter will serve as a letter of intent by Peritus Software Services,
Inc. (herein "Peritus") with respect to your future employment by Peritus. This
letter sets forth the terms of your employment as has been discussed by you and
myself, Dominic Chan, on behalf of Peritus. As we agreed, this letter is
intended as and shall serve only as an interim agreement until a more formally
drafted agreement can be agreed upon and executed, at which time the terms of
this agreement shall be superseded and replaced entirely by the terms and
conditions of the formally drafted agreement. In addition, you will be expected
to sign a standard employee agreement as well as documentation to satisfy
federal I-9 requirements.
You will begin your employment with Peritus on September 1, 1996. Your
employment contract will expire on August 31, 2000.
Initially, you will be responsible for Year 2000 solutions worldwide,
excluding channel and strategic alliances.
Your salary will be $200,000 annually, accrued on a daily basis throughout
each year, to be paid as per company policy (i.e., every two weeks).
Upon the start of your employment, you will receive Peritus stock options
for two hundred thousand (200,000) shares which may be exercised into common
stock at $2.80 per share. Fifty thousand (50,000) options will vest immediately
upon your starting employment with Peritus, Fifty thousand (50,000) options
will vest no later than August 31, 1997, fifty thousand (50,000) options will
vest no later than August 31, 1998 and the final fifty thousand (50,000) options
will vest no later than August 31, 1999. All options may be exercised
immediately upon vesting and the stock resulting from such exercises shall not
be restricted by Peritus except as may be required by law.
If your employment at Peritus is terminated for any reason without cause,
any of the two hundred thousand (200,000) shares identified above that have not
yet vested will become vested immediately upon said termination without cause,
without any restrictions, plus you will receive one (1) years salary ($200,000)
continuance paid biweekly. It is understood that your failure to meet agreed
upon performance objectives could constitute cause for your termination.
If Peritus is liquidated, upon said liquidation, all unvested options shall
vest immediately prior to liquidation, and you will have immediate rights to
exercise all previously
<PAGE>
unexercised options including those vesting according to this sentence.
Your eligibility for an annual bonus will be determined based on company
policy.
Peritus will reimburse you for all reasonable travel expenses incurred as a
result of your employment by Peritus, consistent with company policy.
If during your employment, your primary residence is unreasonably distant
from the principle place of business of Peritus and you must rent a residence
for yourself in Massachusetts that is in addition to your primary place of
residence in order to perform your duties, then Peritus will make available to
you an allowance of $1,500 per month to be used solely for the monthly rent
payment of the residence in Massachusetts. You will pay the difference and all
other expenses associated with the maintenance of said home in Massachusetts.
The possible payment by Peritus of relocation expenses will be discussed if
it becomes necessary for you to relocate.
You will be eligible for the company benefits plan.
Should the terms of your employment with Peritus as set forth herein meet
with your approval, please sign this letter where indicated.
Sincerely,
Peritus Software Services, Inc.
by: /s/ Dominic Chan
-------------------------------
Dominic Chan, Chief Executive Officer
/s/ Len Miller 09/01/97
- ------------------------------ ------------
Len Miller Date
<PAGE>
EXHIBIT 10.23
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
MASTER SOFTWARE SERVICES AGREEMENT
BETWEEN
PERITUS SOFTWARE SERVICES, INC.
AND
BULL HN INFORMATION SYSTEMS INC.
DATED
AS OF FEBRUARY 3, 1992
<PAGE>
TABLE OF CONTENTS
-----------------
MASTER SOFTWARE SERVICES AGREEMENT
BETWEEN
PERITUS SOFTWARE SERVICES, INC.
AND
BULL HN INFORMATION SYSTEMS INC.
DATED
FEBRUARY 3, 1992
<TABLE>
<CAPTION>
Section Heading Page No.
- ------- ------- --------
<S> <C> <C>
1. Definitions..............................................................................................4
-----------
2. Term.....................................................................................................9
----
3. Services to be Provided by Peritus/Additional Obligations of Peritus....................................10
--------------------------------------------------------------------
4. Limitation on Services; Availability of Additional Services.............................................13
-----------------------------------------------------------
5. Charges.................................................................................................15
-------
6. Obligations of Bull.....................................................................................15
-------------------
7. Non-Solicitation and Non-Competition....................................................................17
------------------------------------
8. Property Rights and Confidentiality.....................................................................18
-----------------------------------
9. Contract Management.....................................................................................21
-------------------
10. Additional Remedies Under Certain Circumstances.........................................................22
-----------------------------------------------
11. Warranties and Indemnification; Including Limitation of Liability and
---------------------------------------------------------------------
Remedies................................................................................................27
--------
12. Force Majeure...........................................................................................29
-------------
13. Headings................................................................................................30
--------
14. Successors and Assigns..................................................................................30
----------------------
15. Notices.................................................................................................30
-------
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
16. Entire Agreement........................................................................................30
----------------
17. Governing Law...........................................................................................31
-------------
18. Time of the Essence.....................................................................................31
-------------------
19. Due Incorporation, Valid Existence, Good Standing and Due
---------------------------------------------------------
Authorization...........................................................................................31
-------------
20. Severability............................................................................................32
------------
</TABLE>
-3-
<PAGE>
MASTER SOFTWARE SERVICES AGREEMENT
Agreement made effective as of the 3rd day of February, 1992 (the
"Effective Date") by and between Peritus Software Services, Inc., a
Massachusetts corporation having a business address of 55 Cambridge Street,
Suite 202, Burlington, MA 01803 ("Peritus"), and Bull HN Information Systems
Inc., a Delaware corporation having a business address of Technology Park,
Billerica, MA 01821 ("Bull"). Peritus and Bull agree that, except as the parties
may agree from time-to-time, in individual project Statements of Work (as
hereinafter defined), the general terms and conditions set forth in this
Agreement shall apply to all software services to be provided by Peritus to Bull
during the term of this Agreement. In the event of any inconsistency between a
Statement of Work, signed by authorized representatives of the parties, and this
Agreement, this Agreement shall prevail, provided however that if a provision in
a Statement of Work expressly refers to this Agreement and specifically sets
forth the extent to which it is intended to modify this Agreement, then, for
purposes of such Statement of Work, such provision in the Statement of Work
shall prevail.
1. Definitions - The following definitions shall apply to this Agreement
-----------
and all Statements of Work agreed to by the parties.
(a) Assigned Component. A Software Component assigned to Peritus for
------------------
on-going maintenance support pursuant to a Statement of Work.
(b) Overdue Backlog. STARs and ISNs that have not been resolved within
---------------
the specified time period for the relevant priority (see definition of
"Performance Criteria" at subsection (n) below). For purposes of calculating
Backlog, each STAR/ISN shall be counted as an equivalent unit.
(c) Bull Software Maintenance Group. The Bull organization that is
-------------------------------
responsible for the generation of corrections to System Technical Action
Requests (STARs) and Internal Software Notifications (ISNs).
(d) Bull Software Support Group. The Bull organization that is
---------------------------
responsible for communicating software maintenance priorities in response to
critical situations reported by external sales networks.
(e) Bull Systems Products. The Bull engineering organization
---------------------
responsible for the complete life cycle of a Software Component.
(f) Continuation and Fix (C & F). The process by which the life of a
----------------------------
Software Component is usefully extended. This function comprises the following
tasks:
-1-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(i) analysis and Resolution of Reported Defects (as defined in
subsection (p) below);
(ii) giving necessary assistance to users of the Software
Component as to how to obtain the maximum utility from the Software Component in
situations where the Software Specifications are unclear or ambiguous;
(iii) necessary assistance to users in the recovery of lost data
where data is lost due to a defect in either the Software Component or the
clarity of the end-user documentation;
(iv) evaluation of System Change Proposals (SCP) and
implementation of selected System Change Proposals; and
(v) implementation of Minor Enhancements. These may include SCP,
changes to improve supportability, maintainability, performance, to reduce
ambiguity in implementation. or to reduce impact on customers of ambiguity of
the Software Specification as in (ii) above.
(g) Correction. A Correction prepared by Peritus in response to a
----------
STAR/ISN shall be provided in the form of both source code and object code,
and/or to the extent appropriate in the form of suggested changes (in terms of
substance rather than final text) to be made in end user documentation, in
formats and on media as required by Bull policies then in effect; all corrected
files supplied by Peritus will include all previous Corrections therein.
(h) Enhancement. A modification to a Software Component that results in
-----------
a new feature being made available to the user of the Software Component, or an
improvement in the implementation of an existing feature. An example of a new
feature is the addition of a new command or option to an existing Software
Component. An example of an improved implementation is the redesign or
reimplementation to reduce the run-time resource utilization in either terms of
memory usage or time taken to execute.
(i) ****************************. The
************************************************ ************* of the fixed
annual maintenance fee that shall be **************** from the next or any
subsequent invoice from Peritus under a Statement of Work after a determination
*********************************************************** during any
Performance Measurement Period.
-2-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(j) ISN. Abbreviation for Bull "Internal Software Notification," which
---
is the vehicle by which problems and enhancement requests are communicated to
the relevant Bull engineering organization by the Bull Level 2, Level 3 and
Level 4 QA organizations and other engineering organizations.
(k) Major Enhancement. An enhancement that requires 60 or more than 60
-----------------
person hours' worth of effort for design, design review, implementation, Level 1
and Level 2 testing, inspections and development of any necessary documentation.
(l) Minor Enhancement. An enhancement that requires less than 60 person
-----------------
hours' worth of effort for design, design review, implementation, Level 1 and
Level 2 testing, inspections and development of any necessary documentation.
(m) PRS. The Bull problem reporting system now or hereafter used for
---
management of STARs and ISNs.
(n) Performance Criteria. The criteria to be applied in determining
--------------------
Peritus' compliance with goals for responses to STARs/ISNs are as follows,
except as expressly modified in a Statement of Work:
(i) STAR/ISN
Completion Period in Calendar Days
----------------------------------
<TABLE>
<CAPTION>
Priority Current Release Prior Releases
- -------- --------------- --------------
<S> <C> <C>
A/1 ************** **************
B/2 ************** **************
C/3, 4 ************** **************
</TABLE>
and, in addition,
(ii) Overdue Backlog not to exceed *** of average monthly intake of
STARs/ISNs during a Performance Measurement Period.
(o) Performance Measurement Period. A rolling period of six (6)
------------------------------
consecutive whole calendar months, commencing monthly, during the term of a
Statement of Work. For example, if the first Performance Measurement Period
during the term of a Statement of Work is from January through June, the second
-3-
<PAGE>
Performance Measurement Period will be the period from February through July of
the same year.
(p) Resolution of Reported Defects. STARs/ISNs and enhancement
------------------------------
requests may be resolved in any of the following manners:
(i) A valid defect was reported and a correction has been
generated.
(ii) A valid defect was reported and a correction has not been
generated because the correction is not feasible within the constraints of the
design and/or implementation. This disposition is valid only with the documented
consent of the author of the defect report.
(iii) The Software Component conforms to specification and need
not be changed.
(iv) The Software Component conforms to specification and the
defect report will be treated as an enhancement and will be considered for
future implementation.
(v) The Software Component conforms to specification and will
not be changed, but the end-user documentation will be clarified.
(vi) The reported defect is caused by a hardware malfunction.
This disposition is valid only with the documented consent of the author of the
defect report.
(vii) The reported defect has only occurred once and could not
be repeated.
(viii) Any other disposition permitted by Bull's PRS.
(q) Software Component. A specific computer program (i.e., an
------------------
individual software product identified by a single Bull Software Technical
Identifier) and associated documentation marketed or utilized by Bull on or
after the effective date of the applicable Statement of Work and any functional
or maintenance updates delivered with respect thereto during the term of such
Statement of Work. A functional update shall mean new functionality and
significant changes to a Software Component, including major and minor bug fixes
and error corrections. A maintenance update shall mean major and minor bug fixes
and error corrections to a Software Component.
(r) Software Maintenance Period. A period of twelve consecutive
---------------------------
months commencing on the effective date of a Statement of Work or an anniversary
thereof.
-4-
<PAGE>
(s) Software Specification. A formal description of the
----------------------
externally visible behavior of Software Components. From a customer's
perspective, a Software Specification is either explicitly or implicitly
contained in the software documentation provided to the customer by Bull.
(t) STAR. Abbreviation for Bull "System Technical Action Request,"
----
which is the vehicle by which problems and enhancement requests are communicated
from the sales networks to the relevant Bull engineering organizations. For
purposes of this Agreement, ISNs and STARs are synonymous.
(u) STAR Coordinator. The employees designated from time to time
----------------
by the Bull Software Support Group and Peritus, respectively, pursuant to a
Statement of Work to be such respective organization's point of contact and
representative responsible for addressing STAR/ISN assignments and transfers
within the subject area covered by such Statement of Work.
(v) Statement of Work. A written statement, executed and delivered
-----------------
by authorized representatives of the parties pursuant to this Agreement,
identifying one or more Software Components as Assigned Components and
containing the agreed term for such Statement of Work and such other details as
the parties shall agree upon for purposes of such Statement of Work. It is
intended that a Statement of Work shall contain only the particular business and
technical details relevant to the project described in the Statement of Work,
and that except to the extent modified or superseded by the terms of a Statement
of Work or otherwise, the general terms and conditions contained in this
Agreement shall be deemed incorporated by reference therein without further
action by the parties. Ordinarily, in addition to identifying the Assigned
Component and the term, a Statement of Work should include:
(i) the names, telephone numbers and locations of STAR
Coordinators,
(ii) the fixed and other charges for services under such
Statement of Work,
(iii) any equipment and systems to be provided or made
available to Peritus by Bull or to which Peritus otherwise shall have access for
purposes of such Statement of Work, and
(iv) any provisions intended to modify, supersede or
supplement the terms and conditions of this Agreement that otherwise would be
incorporated by reference into such Statement of Work in accordance with the
terms hereof.
-5-
<PAGE>
(w) System Change Proposals (SCP). Change requests submitted to Bull
-----------------------------
from the various Bull Users' Societies.
(x) Quality Management System. A documented Bull quality system to
-------------------------
insure that a product conforms to specified requirements which (i) includes
documented quality procedures and instructions, and (ii) is applicable to and
implemented by the cognizant Bull Software Maintenance Group.
2. Term.
----
(a) This Agreement. The term of this Agreement shall commence on the
--------------
Effective Date and, unless sooner terminated as otherwise provided in this
Agreement or by the mutual agreement of the parties, shall continue in effect
for three years from the Effective Date and from year to year thereafter until
terminated by either party's giving written notice of termination to the other
not less than one hundred eighty (180) days prior to the effective date of
termination. The expiration or termination of this Agreement shall not operate
to terminate any Statement of Work executed and delivered by the parties during
the term of this Agreement, and each such Statement of Work (including without
limitation the terms and conditions of this Agreement which are deemed to have
been incorporated therein by reference) shall continue in full force and effect
until its expiration or termination in accordance with its terms, unless
otherwise provided herein.
(b) Statements of Work.
------------------
(i) Commencement. Peritus shall promptly begin and
------------
diligently provide software service for Assigned Components on the effective
date of the Statement of Work applicable thereto.
(ii) Continuation. With respect to each Assigned Component,
------------
Statement of Work shall remain in effect for successive Software Maintenance
Periods until terminated by notice from one party to the other in accordance
with subsection 2(iii) below or as otherwise expressly provided in such
Statement of Work.
(iii) Termination. Except as otherwise provided herein,
-----------
(1) Without Cause. Either party may terminate the
-------------
term of a Statement of Work as of the end of such
Software Maintenance Period as may be specified therein
by giving written notice to the other, such notice to
be given by Peritus or Bull not later than one hundred
eighty (180) days before the end of such Software
Maintenance Period.
-6-
<PAGE>
(2) For Cause. Except as otherwise provided in
---------
Section 10, in the event of any failure by either party
to perform any of its obligations under a Statement of
Work, continuing for 60 days after written notice
specifying such failure in reasonable detail, without
being cured, or cure thereof commenced and diligently
prosecuted at all times thereafter, or in the event
that a party ceases to carry on its business, a
receiver or similar officer is appointed for a party
and is not discharged within 30 days, a party becomes
insolvent, admits in writing its inability to pay debts
as they mature, is adjudicated bankrupt, or makes an
assignment for the benefit of its creditors or another
arrangement of similar import, or proceedings under any
bankruptcy or insolvency law are commenced by or
against a party and are not dismissed within 30 days,
the other party may at its election by written notice
terminate such Statement of Work as of any date
thereafter, and such termination shall remain effective
notwithstanding any cure of the effect of such failure
prior to the effective date thereof.
3. Services to be Provided by Peritus/Additional Obligations of Peritus.
--------------------------------------------------------------------
Peritus shall provide the following services to Bull, and in doing so,
shall adhere to or exceed the Quality Management System implemented by Bull at
the time of the delivery of the services to Bull; Peritus shall also be
responsible for the following additional obligations to Bull during the term of
a Statement of Work:
(a) Software C & F. Peritus shall use all technically feasible means to
--------------
provide C & F for an Assigned Component when problems are reported to Peritus.
The following procedures shall apply:
(i) Assignment by Bull. Each assignment of a software defect
------------------
requiring resolution by Peritus shall be in the form of a STAR/ISN, as currently
utilized by Bull, and shall be reported and monitored as such. Without
limitation of the foregoing, each assignment shall specify the Performance
Criteria Priority assigned to the STAR/ISN and shall be accompanied by all
relevant documents and records relating to the problem to be resolved,
including, but not limited to, the designation of the Assigned Component and
release level, the sequence of operations that produced the problem and the
exact text of any error messages. In the event that Peritus objects to the
Performance Criteria Priority assigned by Bull, Peritus shall nevertheless
process the STAR/ISN at the higher priority assigned by Bull unless Bull
otherwise agrees. To facilitate transmission and receipt of STARs/ISNs, Peritus
shall be assigned a PRS coordinator queue, which Peritus shall scan at least
twice each business day for incoming STARs/ISNs. A STAR/ISN shall be deemed
assigned to
-7-
<PAGE>
Peritus at the time of its entry into the Peritus queue by Bull regardless of
when Peritus actually accesses the same.
(ii) Processing and Response by Peritus. Following receipt
----------------------------------
by Peritus through appropriate channels of a STAR/ISN acknowledged by Peritus to
pertain solely to one or more Assigned Components, Peritus shall promptly
analyze the STAR/ISN and such other available information as Peritus determines
to be relevant and shall:
(1) Provide the designated Bull software integration
department with a Correction, with simultaneous
notification thereof, through the PRS, to the author
of the STAR/ISN, it being understood and agreed that
Corrections shall be inspected by Peritus prior to
Level 1 testing (as defined in the Bull SEPA
document) and that after satisfactory inspection and
Level 1 testing, Level 2 testing with an appropriate
set of systems shall promptly be performed by
Peritus. Any further testing will be the
responsibility of Bull;
(2) Notify the Bull Software Support Group STAR
Coordinator that Peritus has concluded that the
Assigned Component conforms to its Software
Specifications and that no Correction is necessary;
(3) Notify the Bull Software Support Group STAR
Coordinator that Peritus has concluded that the
Assigned Component conforms to its Software
Specifications but that the end-user documentation
will be clarified;
(4) Notify the Bull Software Support Group STAR
Coordinator that Peritus has concluded that the
Assigned Component conforms to its Software
Specifications and that the STAR constitutes a Major
Enhancement request;
(5) Notify the Bull Software Support Group STAR
Coordinator that Peritus has concluded that
correction of the problem is not feasible within the
constraints of the design and/or implementation,
specifying in reasonable detail in such notice the
reasons for such conclusion, and requesting the Bull
Software Support Group STAR Coordinator's concurrence
or further guidance, it being agreed that this
response shall be valid only upon the consent of the
author of the STAR/ISN;
-8-
<PAGE>
(6) Notify the Bull Software Support Group STAR
Coordinator that the reported defect is caused by a
hardware malfunction;
(7) Notify the Bull Software Support Group STAR
Coordinator that the reported defect has occurred
only once and cannot be repeated, specifying in
reasonable detail in such notice the reasons for such
conclusion, and requesting the Bull Software Support
Group STAR Coordinator's concurrence or further
guidance; and/or
(8) Respond with any PRS response code valid as of
the Effective Date (or as the parties may otherwise
agree).
The time of transmission by Peritus to Bull of any of the foregoing responses
shall be the relevant time for purposes of determining Peritus' compliance with
the Performance Criteria. Any incoming STARs/ISNs that do not obviously (to
Peritus) pertain solely to Assigned Components shall be referred for disposition
to the next Bull STAR screening meeting, and shall be processed thereafter as
mutually determined by the parties.
(iii) Releases (Updates and/or Adjustments). Upon request from
-------------------------------------
Bull from time to time, Peritus shall notify Bull of all Corrections required to
be included in maintenance releases, updates or adjustments for Assigned
Components, which releases, updates or adjustments shall, unless otherwise
agreed, include all fixes up to a cut-off date mutually determined by Bull and
Peritus. Peritus shall send its input for such releases, updates or adjustments
to the Bull Software Maintenance Group.
(iv) Tools and Utilities. Peritus shall, without additional
-------------------
charge, provide Bull (solely for internal use, by or for Bull, in Bull's and
other Group Bull companies' business and not for disclosure, transfer or
licensing by Bull or such companies to third parties) with copies of all tools
and utilities, and all modifications, enhancements and improvements with respect
thereto, which Peritus develops during the term of this Agreement for the
purpose of developing and testing Corrections to Assigned Components; PROVIDED,
HOWEVER, THAT THE PARTIES UNDERSTAND AND AGREE THAT SUCH TOOLS AND UTILITIES
SHALL BE PROVIDED "AS IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY OF ANY
KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In those cases where such
tools and utilities are used by third parties for the benefit of Bull or other
Group Bull companies, such third parties shall have entered into a
confidentiality agreement consistent with the provisions of subsection 8.(b) of
this Agreement. The rights and obligations under this subsection shall survive
any termination or expiration of this Agreement.
-9-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(v) Ownership of Corrections. Ownership of and all right and
------------------------
title in and to Corrections and the intellectual property comprised thereby
(including without limitation the source code, object code and all related
documentation) shall be in Bull. Peritus agrees that, except with the express
written consent of Bull, which may be withheld without liability, Peritus shall
maintain the confidentiality of all source code and related documentation owned
by Bull and to which Peritus is given access, shall use the same only in
connection with Statements of Work and shall not disclose any part thereof to
any third party (other than such disclosure to third parties as may be necessary
or useful in the performance of a Statement of Work, and then on terms requiring
each such third party similarly to maintain the confidentiality thereof).
(b) STARs Unresolved as of the Effective Date of a Statement of Work.
----------------------------------------------------------------
The backlog of STARs existing and unresolved prior to the effective date of a
Statement of Work shall be addressed by Peritus in accordance with a schedule
and priority (and, in the case of STARs constituting Major Enhancement requests,
for compensation) to be mutually determined by the parties as soon as reasonably
practicable after such effective date.
(c) Additional Obligations of Peritus. In addition to Peritus's
---------------------------------
obligations under Section 8, for purposes of this Agreement, Peritus agrees with
the following conditions in order to preserve the security of Bull information
and systems:
(i) Bull shall have the right to locate the telecommunications
equipment identified in Schedule E, subject to change as reasonably required by
Bull, at Peritus's place of business, for which Peritus shall provide Bull with
reasonable access in order to enable Bull to configure and maintain such
equipment, and for which Peritus shall provide the required electrical power
********************;
(ii) Peritus shall reconfigure, at Bull's request
************************, the applicable equipment and software in order to be
operable with such telecommunications equipment;
(iii) Peritus shall not connect any other communications
facility, including any modem or network, to the network of the systems used to
access other Bull systems, except with the prior written consent of Bull in each
instance;
(iv) Peritus, at Bull's request, shall allow Bull ********
*******************************************************************************
****** to be
-10-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
maintained by Peritus for a period of at least ************ from the date of
generation thereof; and
(v) Peritus shall provide a communications coordinator for the
purpose of immediately investigating any network security breaks, which
coordinator shall be available for such purpose *******************************
****************************.
4. Limitation on Services; Availability of Additional Services.
-----------------------------------------------------------
(a) Limitation on Services. The services contemplated by Section 3
----------------------
above pertain only to Assigned Components being used in their proper
environments and being run on operating system releases and hardware platforms
which have been certified by Bull to correctly operate with the Assigned
Components. Peritus shall not be obligated to provide support for any operating
systems or operating systems functions or components which are not specifically
provided for in a Statement of Work. The services to be provided by Peritus
pursuant to Section 3 above do not include services such as application design,
consulting (other than as necessary in connection with the performance of
Continuation and Fix with respect to Assigned Components), custom configuration,
Major Enhancement of the Assigned Components or recovery of lost data (other
than as necessary in connection with the performance of Continuation and Fix
with respect to Assigned Components). Such services, however, may be provided by
Peritus, at Peritus' then published prices for such support, subject to (i) a
schedule agreeable to Peritus and Bull and (ii) the availability of Peritus
personnel.
(b) Availability of Additional Services. Without limitation of the
-----------------------------------
foregoing, upon request by Bull from time to time, Peritus may provide
supplemental software engineering services on the basis of bid prices, time and
materials, or such other basis as the parties shall agree upon, for Major
Enhancements to Assigned Components in each of the following cases, subject to
prior written approval of the senior Bull employee identified in subsection
9.(b):
(i) STARs mutually determined to be requests for Major
Enhancements;
(ii) Major Enhancements requested by Bull;
(iii) Major Enhancements identified by Peritus and agreed
to by Bull; and
-11-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(iv) Major Enhancements requested by third parties through Bull
(regardless of whether such third parties may contribute to Bull any or all of
the funding for such Major Enhancement).
In each of such cases, ownership of and all right and title in and to the Major
Enhancement and the intellectual property comprised thereby (including without
limitation the source code, object code and all related documentation) shall be
in Bull. Peritus agrees that, except with the express written consent of Bull,
which may be withheld without liability, Peritus shall maintain the
confidentiality of all source code and related documentation, shall use the same
only in connection with Statements of Work and shall not disclose any part
thereof to any third party (other than such disclosure to third parties as may
be necessary or useful in the performance of a Statement of Work, and then on
terms requiring each such third party similarly to maintain the confidentiality
thereof).
5. Charges.
-------
(a) Payment. Bull agrees to pay Peritus the charges for software services
-------
and other fees set forth in each Statement of Work. Except as otherwise provided
in this Agreement, no invoice under any Statement of Work shall be subject to
credit for any period of non-use by Bull for any reason, including defects in
any Assigned Component. Peritus shall invoice Bull for the fixed portion of the
annual maintenance fees under each Statement of Work on a quarterly basis in
advance at the beginning of each quarter during a Software Maintenance Period.
Other fees and charges shall be invoiced monthly or as otherwise agreed. All
invoices, issued by either Peritus or Bull, shall be payable within 45 days. If
Bull fails to pay any charges when due and payable, Bull agrees that Peritus
shall have the right to invoice and Bull shall pay a late payment charge equal
to the then existing prime rate of interest at the Bank of Boston, plus one
point, monthly, prorated on the unpaid balance. If Peritus fails to pay any
charges when due and payable, Peritus agrees that Bull shall have the right to
invoice and Peritus shall pay a late payment charge equal to the then existing
prime rate of interest at the Bank of Boston, plus one point, monthly, prorated
on the unpaid balance.
(b) Changes. Except for the fixed portion of the annual maintenance charges
-------
specified in a Statement of Work for the maintenance services to be performed by
Peritus pursuant thereto, Peritus may change the charges specified in a
Statement of Work ************************* for all or any services by giving at
least ************************************* to Bull prior to the effective date
of the change. The
-12-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
adjusted charges will not exceed Peritus' list price to commercial customers on
the effective date of such adjustment.
(c) Taxes. Unless Bull provides satisfactory evidence of exemption to
-----
Peritus from such taxes, all charges and fees are exclusive of all federal,
state, municipal or other political subdivision excise, sales, use, property,
occupational, or like taxes now in force or enacted in the future and are
therefore subject to an increase equal to any such taxes Peritus may be required
to collect or pay upon the sale or shipment or use of any product or service
provided hereunder, except taxes based exclusively on Peritus' net income, and
use or personal property taxes levied on tangible personal property used by
Peritus in performing software services under this Agreement.
6. Obligations of Bull.
-------------------
Without limitation of any other obligations provided for elsewhere in this
Agreement or in any Statement of Work, Bull shall at all times during the term
of this Agreement and any Statement of Work, solely at Bull's cost and expense
and without charge to Peritus:
(a) Provide Peritus a PRS coordinator queue and, in the event that the
method of reporting STARs and ISNs should be changed, provide Peritus with
appropriate access, software licenses and training for the replacement method so
as to permit Peritus to continue to perform its obligations under Statements of
Work;
(b) Provide Peritus (at Peritus' site) with necessary access, via
electronic means, to all systems within Bull which contain STAR/ISN
documentation relevant to Assigned Components, subject, however, to the
implementation of such appropriate security measures as reasonably required by
Bull in order to prevent unauthorized access, which measures may include,
without limitation, the assignment to Peritus of a separate password or
passwords; and provided, further, that in no event shall Peritus be provided
access to Bull customer sites or systems without the prior written consent of
Bull; in addition, Peritus will be responsible for and pay all charges for
communication lines between Peritus and Bull; and, further, Bull shall be
responsible for and pay the planned current charge of ********* for a
communications node which may be required to establish communications between
Peritus and Bull. Should the ******** communications node charge increase
substantially following the Effective Date, then Peritus, upon request by Bull,
agrees to discuss an equitable alternative with Bull or a
******************************************.
-13-
<PAGE>
(c) Provide Peritus (solely for Peritus' use in Peritus' business in
connection with Statements of Work and not for licensing by Peritus to third
parties) with copies of all tools and utilities, existing on the Effective Date
or created thereafter, and all modifications, enhancements and improvements with
respect thereto, which Bull has legal right to provide to Peritus and which are
necessary or useful in the development or testing of Corrections; provided,
however, that the parties understand and agree that Bull shall have no
obligation to Peritus under this provision affirmatively to expend funds or
allocate resources to the development or improvement of any such tools or
utilities; and provided further, that all right title and interest to any
modifications, enhancements and improvements made by Peritus to such tools and
utilities, whether made at Bull's, Peritus's or any other party's expense, shall
be solely in Bull and shall be subject to the provisions of Section 8.
(d) Use its best efforts to provide Peritus with reasonable access to Bull
development and software maintenance personnel (including personnel in France)
for purposes of limited consultation from time to time as necessary to permit
Peritus to perform its obligations under Statements of Work;
(e) Provide Peritus personnel with contractor status access to designated
Bull sites, and provide at each such site a secure area for Peritus personnel
and equipment, as necessary to permit Peritus to perform its obligations under
Statements of Work;
(f) Provide Peritus with access, on both a read and write basis, to
specifically agreed to source codes for Assigned Components, and on a read-only
basis to such other source code as specifically agreed to and as necessary or
useful to Peritus in the performance of its obligations under Statements of
Work;
(g) Provide Peritus (at Peritus' home office), for use solely in connection
with Statements of Work, with the items of equipment (on maintenance contracts
complying with the terms specified in a Statement of Work), software,
documentation, licenses, specifications, maintenance documents and other items
specified in each Statement of Work;
(h) Provide Peritus with access to specifically agreed to support,
development and test environments necessary to permit Peritus to perform its
obligations under Statements of Work based on the priority scheduling determined
jointly by Bull and Peritus STAR Coordinators;
(i) Provide Peritus with reasonable access to Bull Software Maintenance
Group systems as necessary in connection with any Statement of Work based on
priority scheduling determined jointly by Bull and Peritus STAR Coordinators;
-14-
<PAGE>
(j) Provide Peritus with the name and telephone number of each STAR
Coordinator assigned under a Statement of Work by each of Bull Software
Maintenance Group and Bull Software Support Group;
(k) Conduct STAR screening meetings on a weekly basis (or with such other
frequency as the parties may agree), keep Peritus advised of the schedule
therefor and permit Peritus personnel to attend such meetings if and when
Peritus should elect to do so, or require Peritus personnel to attend such
meetings at Bull's request; and
(l) To the extent necessary to permit Peritus to perform its obligations
under any Statement of Work, coordinate with Peritus and with Bull customer
personnel regarding information required by Peritus in connection with such
Statement of Work; provided, however, that in no event shall Peritus make direct
contact with any Bull customer for such purpose without the prior written
consent of Bull.
7. Non-Solicitation and Non-Competition.
------------------------------------
In consideration of the sensitive and confidential nature of the
information and access provided by Bull to Peritus and the sensitive and
confidential nature of the services to be performed by Peritus under this
Agreement;
(a) Each of the parties agrees that it shall not, directly or indirectly,
solicit or induce, or attempt to solicit or induce, other than through normal
public advertising for employees, any person who is then an employee of the
other to leave such employment for any reason whatsoever, or hire any person who
is then an employee of the other; and
(b) Peritus agrees that it shall not, directly or indirectly, solicit,
divert or accept any business from any person, firm or entity who at the time is
a direct customer of Bull, otherwise than expressly permitted pursuant to a
Statement of Work or as otherwise expressly agreed by Bull in writing. Requests
for permission, in each case, shall be made by Peritus in accordance with the
provisions of Section 15. In response to each such request, Bull will respond
within thirty (30) days from the date of receipt with an approval or a
disapproval. The failure of Bull to respond within such thirty (30) day period
shall constitute an approval by Bull of the request by Peritus. Any disapproval
shall not be subject to challenge by Peritus. The senior employee of Peritus may
contact the senior employee of Bull, in accordance with the provisions of
subsection 9.(b), in order to further explain the reasons and purposes of the
request. This subsection 7.(b) shall be limited in time and geographical scope
to (i) a period of five (5) years from the Effective Date of this Agreement or
for the term of an applicable Statement of Work, whichever is longer; and (ii)
the United States and Canada.
-15-
<PAGE>
8. Property Rights and Confidentiality
-----------------------------------
(a) Peritus Obligations. In view of the confidential relations
-------------------
contemplated hereunder between Peritus and Bull and the payments to be made to
Peritus as herein set forth, Peritus agrees:
(i) that Peritus and its employees shall communicate promptly and
fully in writing to Bull all inventions, designs, including mask works, ideas,
processes, discoveries, improvements and inventions and technical or business
innovations (hereinafter "Developments") conceived or made by Peritus or its
personnel and all writings, software, firmware, databases or other works of
authorship (hereinafter "Works") created by Peritus or its personnel during the
term of this Agreement and for six months thereafter, (whether or not patentable
or copyrightable and whether made solely by Peritus or its personnel, or jointly
with others) which result from or are suggested by any work which Peritus or its
personnel may do pursuant to this Agreement or which result from information
derived from Bull or its employees;
(ii) that such Developments shall be deemed the sole and exclusive
property of and owned by Bull or its nominees whether or not patentable, and
that Peritus assigns all right, title and interest in and to the same to Bull
and without regard to any termination of this Agreement; that Peritus agrees
that any Work created by Peritus or its employees in the performance of services
for Bull during the term of this Agreement has been commissioned by Bull and
that such commissioned Work shall be deemed a "work made for hire" under the
U.S. Copyright Laws. If any Work is determined by a court of competent
jurisdiction not to be "a work made for hire" under the U.S. Copyright Laws,
this Agreement shall operate as an irrevocable assignment by Peritus of the
copyright in such Work, including all rights of every kind in such Work for the
entire duration of such copyright, and that no rights are reserved to Peritus;
(iii) that Peritus will assist Bull (or its successors, assigns or
nominees) in every proper way during and subsequent to the term of this
Agreement (entirely at Bull's expense) to perfect Bull's or its nominees' right,
title, and interest in any developments, patents, patent applications (including
continuations, continuations-in-part and divisions), copyrights of any and all
types or other forms of legal protection for such Developments and Works in any
and all countries of the world, by executing and delivering all papers and
instruments, including assignment forms, and to perform such further acts,
including giving testimony or furnishing evidence relating to such interests, as
may be deemed necessary by Bull (or its successors, assigns or nominees);
-16-
<PAGE>
(iv) that Peritus will maintain adequate and current written
records of all such Developments and Works, in the form of notes, sketches,
drawings or reports relating thereto, which records shall be available to Bull
at all times and such written records shall be turned over to Bull at the end of
the term of this Agreement or upon termination of the Agreement, whichever
occurs earlier;
(v) that except as an authorized representative of Bull may
otherwise consent in writing, Peritus shall maintain in confidence and not
disclose at any time either during or subsequent to the term of this Agreement,
any information, software, knowledge or data of Bull which Peritus or its
employees may receive, acquire or obtain during the Term, relating to such
Developments or Works being conducted under this Agreement or business plans and
information systems, or other proprietary matters, including that prepared,
produced or developed by Peritus or its employees in the performance of this
Agreement, and that Peritus and its personnel shall not use such information,
knowledge or data outside this Agreement except as an authorized representative
of Bull may otherwise consent in writing, unless Peritus can demonstrate to the
satisfaction of Bull that such information was actually known to Peritus prior
to this Agreement, or was properly obtained or developed by Peritus
independently of such information and apart from any connection with Bull or its
employees, directly or indirectly, all without breach of any confidential
relationship, or became publicly available through no act of Peritus or its
employees;
(vi) all data, designs, drawings, plans, layouts,
specifications, software, etc. and any and all other tangible information or
works, including, but not limited to, any and all information, written or
otherwise, which may be or has been furnished to Peritus or its personnel shall
remain the exclusive property of Bull. Peritus shall not make copies of any such
materials, except to the extent reasonably required to enable Peritus or its
personnel to perform the services specified under this Agreement. Upon the
termination or completion of the services hereunder or upon earlier request by
Bull (subject to the provisions of Sections 3 and 6 of this Agreement), any and
all materials referred to in this Section 8, together with all copies and
reproductions in Peritus's possession, custody, or control, shall be promptly
delivered to Bull, and Peritus shall make no further use or utilization, either
directly or indirectly, of any such materials;
(vii) that with respect to any information, software,
knowledge, or data disclosed to Bull hereunder, Peritus shall inform Bull in
writing if the services being performed by Peritus or its personnel, in the
opinion of Peritus, are likely to infringe any patent, copyright, trade secret,
trademark or other proprietary right of a third party or of Peritus. Peritus
agrees that it shall not furnish or make use of any patent, copyright, trade
secret, trademark or other proprietary right in the performance of this
Agreement without the prior written consent of Bull and, as provided in Section
11, Peritus agrees to indemnify and hold harmless Bull as to any claim of
infringement or alleged infringement resulting therefrom. A failure to
-17-
<PAGE>
provide Bull with such advance written notice concerning the likeliness of the
infringement of Peritus's property rights shall confer upon Bull the
unrestricted right to use or to publish any and all information, software,
knowledge, or data disclosed to Bull by Peritus under Peritus's applicable
patents, copyrights, trade secrets or trademarks;
(viii) that Peritus shall not communicate or otherwise
disclose to Bull or its employees any confidential or trade secret information
of any third party; and
(ix) that all tools and materials necessary for the
performance of the services of Peritus shall, except as provided in this
Agreement, be supplied by Peritus. Any tools or materials supplied by Bull to
Peritus during the term of this Agreement shall at all times remain the property
of Bull and be returned to Bull upon demand (subject to the provisions of
Sections 3 and 6 of this Agreement) or at the end of the term of this Agreement.
(b) Bull Obligations In view of the confidential relations
----------------
contemplated hereunder,
(i) except as an authorized representative of Peritus may
otherwise consent in writing, Bull shall maintain in confidence and not disclose
at any time either during or subsequent to the term of this Agreement, any
information, software, knowledge or data of Peritus which Bull or its employees
may receive, acquire or obtain during the term of this Agreement from Peritus
and that Bull and its employees shall not use such information, software,
knowledge or data outside this Agreement except as an authorized representative
of Peritus may otherwise consent in writing, unless Bull can demonstrate to the
satisfaction of Peritus that such information was actually known to Bull prior
to this Agreement, or was properly obtained or developed by Bull independently
of such information and apart from any connection with Peritus or its employees,
directly or indirectly, all without breach of any confidential relationship, or
became publicly available through no act of Bull or its employees; and
(ii) Bull shall not communicate or otherwise disclose to
Peritus or its employees any confidential or trade secret information of any
third party.
(c) Peritus Further Obligations In view of the extremely sensitive
---------------------------
nature of the Bull computer systems and the information therein which systems
Peritus will be allowed to access on a worldwide basis, Peritus agrees that it
will access only that information which it must necessarily access in order to
perform its obligations under any Statement of Work, that it will hold Bull
access codes in strict confidence and shall not provide any such codes to any of
its employees except those authorized to perform under any Statement of Work,
that it will keep a log of the persons so given such access codes and the date,
and the computer system each and every time so
-18-
<PAGE>
accessed, and that Peritus will comply with such other security measures which
Bull may reasonably require. Peritus understands and agrees that any
unauthorized access of such computer systems or any Bull sensitive information
may cause irreparable harm to Bull and its affiliated companies and their
customers. Should Peritus suspect that there has been any such unauthorized
access, Peritus shall immediately take all steps to limit the consequences
thereof and shall immediately inform Bull in writing identifying the specific
details of such unauthorized access. Peritus shall cooperate with Bull, at
Peritus expense, in order to enforce Bull's rights hereunder.
(d) Survival. This Section 8 shall survive any termination or
--------
expiration of this Agreement.
9. Contract Management.
-------------------
(a) Day-to-Day Management. Bull and Peritus will each assign an
---------------------
employee to coordinate the day-to-day management of issues arising between the
parties under this Agreement and Statements of Work hereunder. The parties have
initially designated for this purpose the employees identified below:
Peritus: Christopher Bailey
Telephone: (617) 272-4405
Facsimile: (617) 221-7122
Bull: Robert Willard
Telephone: (508) 294-2673
Facsimile: (508) 294-5948
(b) Resolution of Serious Problems. Bull and Peritus will each assign a
------------------------------
senior employee to act as its representative for purposes of resolving disputes
that are not resolved by the persons designated in subsection (a) above. Either
of such senior employees may request a meeting with his or her counterpart
whenever he or she determines that it is necessary or appropriate to do so in
order to resolve a matter of significance to either party's performance under a
Statement of Work, and in such event both parties shall endeavor in good faith
to arrive at a practical solution consistent with both the requirements of the
Statement of Work and the reasonable expectations of both parties to the maximum
extent possible. The parties have initially designated for this purpose the
senior employees identified below:
Peritus: Dominic Chan
55 Cambridge St.
Burlington, Mass. 01803
Telephone: (617) 221-0400
Facsimile: (617) 221-7122
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<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Bull: David Devoy
300 Concord Rd.
Billerica, Mass. 01821
Telephone: (508) 294-3837
Facsimile: (508) 294-3940
The parties also agree that the senior employees shall endeavor to meet at least
quarterly to review generally performance under Statements of Work then in
effect and other issues of mutual interest.
(c) Notice of Change. Each party shall give notice to the other of
----------------
any change in the persons designated by it for purposes of this Section 9.
10. Additional Remedies Under Certain Circumstances.
-----------------------------------------------
(a) *******************. Compliance with the Performance Criteria shall
-------------------
be determined with respect to each Performance Measurement Period. The parties
agree that Bull's sole and exclusive remedy for any failure by Peritus to meet
the Performance Criteria during any one or more Performance Measurement Periods
shall be as provided in this Section 10. The parties agree that, subject to a
review of these provisions to be conducted in good faith before the first
anniversary of the Effective Date, the following shall be the
***************************** applicable during the term of this Agreement:
(i) Overdue Backlog for STARs/ISNs
(1) If Overdue Backlog during a Performance
Measurement Period
**********************************************************
********** shall be *** unless Overdue Backlog shall
have ************ during each of the *** immediately
preceding Performance Measurement Periods, in which
case the
*****************************************;
(2) If Overdue Backlog during a Performance
Measurement Period ****************************************
***********************;
(3) If Overdue Backlog during a Performance
Measurement Period ****************************************
************************;
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<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(4) If Overdue Backlog during a Performance
Measurement Period ****************************************
***********************; and
(5) If Overdue Backlog during a Performance
Measurement Period ***********, the parties shall, at
the request of either party, meet as promptly as
reasonably practicable to determine and discuss the
causes for such level of performance, specific
measures to ensure improvement and whether the
Statement of Work should be terminated or modified.
(ii) Completion of STAR/ISN Priorities
(1) If during a Performance Measurement Period,
completion of STAR/ISN response goals for priority
A/1 and B/2 as defined in the Performance Criteria
(hereinafter "STAR Priority") is
***********************************************************
***********************, unless the STAR Priority
completion is less than *** during each of the ***
immediately preceding Performance Measurement
Periods, in which case the **********
******************************;
(2) If during a Performance Measurement Period, STAR
Priority completion is ************************************
***********************************************;
(3) If during a Performance Measurement Period, STAR
Priority completion is ************************************
******************************************;
(4) If during a Performance Measurement Period, STAR
Priority completion is ********************************
**************************************************; and
(5) If during a Performance Measurement Period, STAR
Priority completion is *************, the parties
shall, at the request of either party, meet as
promptly as reasonably practicable to determine and
discuss the causes for such level of performance,
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<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
specific measures to ensure improvement and whether the
Statement of Work should be terminated or modified;
(iii) Penalties Not Cumulative - Notwithstanding the above, in no
event shall ***************************** for Overdue Backlog and STAR Priority
be cumulative and exceed the highest applicable penalty for one category. In
addition, for purposes of determining the **************************** for
Overdue Backlog, the STAR Priorities A, B and C shall be summed to provide a
STAR Overdue Backlog Percentage, and the ISN Priorities 1, 2, 3 and 4 shall be
summed to provide an ISN Overdue Backlog Percentage. The least satisfactory
percentage of such two measurements, i.e., the STAR Overdue Backlog Percentage
and the ISN Overdue Backlog Percentage, shall be used in determining the
***************** for Overdue Backlog as provided in subsection 10. (a)(i)
above. Further, for purposes of determining the **************************** for
completion of STAR/ISN Priorities, the completion percentages for STAR
Priorities A and B shall be weighted equally to provide an Average STAR Priority
Percentage and the completion percentages for ISN Priorities 1 and 2 shall be
weighted equally to provide an Average ISN Priority Percentage. The least
satisfactory percentage of such two measurements, i.e., the Average STAR
Priority Percentage and the Average ISN Priority Percentage, shall be used in
determining the ***************** for STAR/ISN Priorities as provided in
subsection 10. (a)(ii) above.
(iv) Preexisting STARs/ISNs - For purposes of this subsection,
"Overdue Backlog" and "STAR Priority" shall not include those STARs/ISNs
existing prior to the effective date of the Statement of Work unless otherwise
agreed in such Statement of Work.
(v) Detailed Description of Calculations
(1) Calculation of STAR Overdue Backlog Percentage -The
******************** Percentage shall be calculated as follows:
The number of STARs, irrespective of priority, that constitute
the STAR Overdue Backlog on the last day of a Performance
Measurement Period will be ************************************
********** during the Performance Measurement Period. This
result will be ***************** to generate the *************
*****************. The average monthly intake is the *********
********************, irrespective of priority, during a
Performance Measurement Period ******************.
-22-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(2) Calculation of ISN Overdue Backlog Percentage -The ISN
Overdue Backlog Percentage shall be calculated as follows: The
number of ISNs, irrespective of priority, that constitute the
******************* on the last day of a Performance
Measurement Period will be ************************************
********* during the Performance Measurement Period. This
result will be ***************** to generate the *************
*****************. The average monthly intake is the total
number of *************, irrespective of priority, during a
Performance Measurement Period ******************.
(3) Calculation of Average STAR Priority Percentage -The
Average STAR Priority Percentage shall be calculated as
follows:
For each Performance Measurement Period the following will be
counted for STARs of priority A:
Item Description
---- -----------
(A) ************************.
(B) ******************************************
******************.
(C) **************************************.
(D) ******************************************
***************
The STAR priority completion percentage for priority A
STARs shall be the number counted in item ************** the
result of *********** the number obtained in item *** from the
*** of the number counted in items *********** with the result
***********************.
For each Performance Measurement Period the following will be
counted for STARs of priority B:
Item Description
---- -----------
(A) ************************.
(B) ********************************************
********************.
-23-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(C) ****************************************.
(D) **********************************************
*******************.
The STAR priority completion percentage for priority B
STARs shall be the number counted in item *********** by the
result of *********** the number obtained in item *** from the
*** of the numbers counted in items *********** with the result
***********************.
The two percentages calculated above shall then be averaged
(summed and divided by two (2)) to determine the Average STAR
Priority Percentage.
(4) Calculation of Average ISN Priority Percentage -The Average
ISN Priority Percentage shall be calculated as follows:
For each Performance Measurement Period the following will be
counted for ISNs of priority 1:
Item Description
---- -----------
(A) ***********************.
(B) ***************************************
*********************.
The ISN priority completion percentage for ISNs of
priority 1 shall be the number counted in item *********** by
the number counted in item *** and the result
*****************.
For each Performance Measurement Period the following
will be counted for ISNs of priority 2:
Item Description
---- -----------
(A) ***********************.
(B) **********************************************
**************.
-24-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
The ISN priority completion percentage for ISNs of
priority 2 shall be the number counted in item *********** by
the number counted in item *** and the result
*****************.
The two percentages calculated above shall then be averaged
(summed and divided by two (2)) to determine the ISN Priority
Completion Percentage.
(b) Right to Designate Management. In the event that, due to a serious
-----------------------------
failure of Peritus to perform its obligations under a Statement of Work, which
failure continues unremedied after 60 days' written notice by Bull specifying
such failure in reasonable detail, Bull should suffer severe disruption in
Bull's daily operations and material damage to Bull's customer goodwill and
reputation, or in the event that prior to the expiration of thirty months from
the Effective Date Dominic Chan, for any reason other than temporary physical or
mental disability, shall cease to be a senior executive officer of Peritus with
responsibilities including oversight of Peritus' performance under Statements of
Work executed and delivered pursuant to this Agreement, then Bull shall have the
right, at its option, exercisable by written notice to Peritus, to designate one
or more qualified senior executive managers to function as the chief executive
and chief operating officers of the unit or units of Peritus having
responsibility for Statements of Work. For purposes of this subsection a
"serious failure" shall not include a failure to achieve the Performance
Criteria, unless Overdue Backlog shall have *********************** successive
Performance Measurement Periods. Unless Bull expressly consents in writing, any
employee of Bull who transfers to become an employee of Peritus shall work at
Peritus only in performance of services under this Agreement on behalf of Bull.
(c) Right to Audit. Bull shall have the right upon reasonable notice
--------------
to Peritus to audit, or have audited through an independent accounting firm, the
books and records of Peritus, at Bull's expense, to verify performance of
Peritus under this Agreement and all Statements of Work. Such books and records
shall be maintained and made available by Peritus for the term of the applicable
Statement of Work *****************.
-25-
<PAGE>
11. Warranties and Indemnification, Including Limitation of Liability and
---------------------------------------------------------------------
Remedies.
- --------
(a) Warranties and Indemnification:
------------------------------
(i) PERITUS REPRESENTS AND WARRANTS THAT THE WORK PRODUCT AND
SERVICES TO BE PROVIDED UNDER THIS AGREEMENT SHALL CONFORM TO THE DESCRIPTION
AND SOFTWARE SPECIFICATIONS THEREFOR, AND THAT THE OPERATION OF SUCH WORK
PRODUCT SHALL EQUAL OR EXCEED THE PERFORMANCE LEVEL(S) SET FORTH IN THE
APPLICABLE SOFTWARE SPECIFICATIONS. PERITUS'S SOLE LIABILITY AND BULL'S SOLE
REMEDY FOR FAILURE TO MEET THE REPRESENTATIONS AND WARRANTIES IS FOR PERITUS TO
REMEDY ANY DEFECTS AS PROVIDED IN SECTION 3, THE IMPOSITION OF FINANCIAL
PENALTIES, AS MAY BE APPLICABLE, AS PROVIDED IN SECTION 10, AND TERMINATION FOR
CAUSE AS PROVIDED IN SUBSECTION 2. (b)(iii)(2).
(ii) PERITUS FURTHER REPRESENTS AND WARRANTS THAT PERITUS HAS
GOOD AND CLEAR TITLE OR RIGHT TO THE WORK PRODUCT TO BE PROVIDED HEREUNDER, AND
TO ALL RIGHT, TITLE AND LICENSES WITH RESPECT THERETO GRANTED TO BULL. PERITUS
FURTHER WARRANTS THAT PERITUS HAS NOT MADE AND WILL NOT MAKE ANY COMMITMENTS TO
OTHERS INCONSISTENT WITH OR IN DEROGATION OF THE RIGHT, TITLE AND LICENSES
GRANTED TO BULL, AND THAT PERITUS IS FREE OF ANY OBLIGATION THAT WOULD PREVENT
IT FROM ENTERING INTO THIS AGREEMENT.
(iii) PERITUS FURTHER WARRANTS THAT, TO THE BEST OF ITS
KNOWLEDGE, THE WORK PRODUCT TO BE PROVIDED UNDER THIS AGREEMENT DOES NOT
INFRINGE ANY PATENT, COPYRIGHT, TRADE SECRET, TRADEMARK OR OTHER LEGAL OR
EQUITABLE RIGHTS OF ANY THIRD PARTY.
(iv) PERITUS AGREES TO INDEMNIFY, HOLD HARMLESS AND DEFEND
BULL, ITS DISTRIBUTORS AND THEIR CUSTOMERS FROM AND AGAINST ANY AND ALL SUITS,
PROCEEDINGS AT LAW OR IN EQUITY, AND ANY AND ALL LIABILITY, LOSS, CLAIMS, COSTS,
DAMAGES OR EXPENSES, INCLUDING REASONABLE ATTORNEY'S FEES, ARISING OUT OF OR IN
CONNECTION WITH ANY CLAIM BY ANY PERSON THAT THE EXERCISE OF ANY RIGHT GRANTED
BY PERITUS HEREUNDER TO SUCH WORK PRODUCT TO BE PROVIDED UNDER THIS AGREEMENT
INFRINGES ANY RIGHT, TITLE OR INTEREST, INCLUDING PATENT, COPYRIGHT, TRADE
SECRET, TRADEMARK OR OTHER PROPRIETARY RIGHTS OF THIRD PARTIES. BULL SHALL
PROMPTLY NOTIFY PERITUS IF BULL BECOMES AWARE OF ANY SUCH
-26-
<PAGE>
ALLEGED INFRINGEMENT OR CLAIM. IF THE CLAIM HAS OCCURRED OR IN PERITUS'S OPINION
IS LIKELY TO OCCUR, PERITUS MAY AT ITS ELECTION AND EXPENSE EITHER OBTAIN FOR
BULL THE RIGHT TO CONTINUE USING SUCH WORK PRODUCT OR REPLACE OR MODIFY SUCH
WORK PRODUCT SO THAT IT IS NOT INFRINGING SO LONG AS THE PERFORMANCE OF SUCH
REPLACEMENT OR MODIFIED WORK PRODUCT EQUALS OR EXCEEDS THE PERFORMANCE OF THE
ORIGINAL WORK PRODUCT. PERITUS IS NOT LIABLE IF ANY INFRINGEMENT CLAIM IS BASED
UPON (i) SPECIFIC DETAILED DESIGN SPECIFICATIONS PROVIDED BY BULL TO PERITUS FOR
THE PURPOSE OF PERITUS IMPLEMENTATION OF A WORK PRODUCT SO LONG AS SUCH
INFRINGING IMPLEMENTATION WAS NECESSITATED BY SUCH DETAILED DESIGN
SPECIFICATIONS, (ii) THE INTERCONNECTION, OPERATION OR USE OF THE WORK PRODUCT
IN COMBINATION WITH EQUIPMENT, SOFTWARE OR OTHER DEVICES WITH WHICH SUCH WORK
PRODUCT WAS NOT INTENDED TO OPERATE, (iii) USE OR OPERATION OF THE WORK PRODUCT
IN A MANNER FOR WHICH IT WAS NOT DESIGNED OR RECOMMENDED BY PERITUS, OR (iv)
ALTERATION, ADAPTATION OR MODIFICATION OF THE WORK PRODUCT OTHER THAN BY
PERITUS. PERITUS SHALL PAY DAMAGES FINALLY AWARDED OR FOR ANY SETTLEMENT MADE
WITH PERITUS'S PRIOR WRITTEN AUTHORIZATION.
(b) Limitation of Remedy. IF PERITUS FAILS TO FULFILL ITS
--------------------
OBLIGATIONS UNDER A STATEMENT OF WORK, EXCEPT AS PROVIDED IN THIS AGREEMENT,
BULL'S SOLE AND EXCLUSIVE REMEDIES SHALL BE THOSE EXPRESSLY PROVIDED FOR IN SUCH
STATEMENTS OF WORK (BY INCORPORATION BY REFERENCE OR OTHERWISE). UPON ANY
TERMINATION OF SUCH STATEMENT OF WORK, PERITUS SHALL NOT HAVE ANY OBLIGATION TO
REFUND ANY FEES PAID TO IT UNDER THE TERMS THEREOF EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED THEREIN.
(c) Limitation of Damages. EXCEPT FOR THE WILLFUL MISCONDUCT OR
---------------------
GROSS NEGLIGENCE OF A PARTY HERETO, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL OR TORT DAMAGES EVEN IF IT HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH, INCLUDING BUT NOT LIMITED TO LOSS OF
REVENUE, LOSS OF PROFITS, OR LOSS OF USE. IN ANY EVENT, EXCEPT AS PROVIDED IN
THE IMMEDIATELY PRECEDING SENTENCE HEREOF AND EXCEPT AS PROVIDED IN SUBSECTION
11. (a)(iv), EACH PARTY'S MAXIMUM LIABILITY UNDER ANY STATEMENT OF WORK SHALL BE
LIMITED TO THE AMOUNTS ACTUALLY PAID BY BULL TO PERITUS THEREUNDER DURING THE
THEN CURRENT SOFTWARE MAINTENANCE PERIOD.
(d) Mutual Disclaimer. EXCEPT AS OTHERWISE STATED IN THIS AGREEMENT,
-----------------
OR A STATEMENT OF WORK, NEITHER BULL NOR PERITUS
-27-
<PAGE>
MAKES ANY WARRANTIES WITH RESPECT TO THIS AGREEMENT OR THE PRODUCTS OR SERVICES
PROVIDED HEREUNDER, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
12. Force Majeure. If the whole or any part of the performance by either
-------------
party of any part of their respective obligations hereunder is prevented or
delayed by causes, circumstances or events beyond the control of such party,
specifically limited to the following: delays of third parties in
transportation, strikes, labor troubles, floods, fires, earthquakes, riots,
explosions, wars, hostilities, acts of government, custom barriers, the
bankruptcy or other insolvency of subcontractors, or other causes of like
character beyond the control of such party, then to the extent such party shall
be prevented or delayed from performing all or any part of its obligations
hereunder by reason thereof despite due diligence and reasonable efforts to do
so notwithstanding such causes, circumstances or events, then such party shall
be excused from performance hereunder for so long as such causes, circumstances
or events shall continue to prevent or delay such performance, so long as such
party shall, promptly after the commencement of any such delay, give the other
party written notice specifying such delay and estimating the duration thereof.
13. Headings. Section headings contained in this Agreement are for
--------
convenient reference only and do not constitute part of this Agreement and shall
not affect the interpretation hereof.
14. Successors and Assigns. This Agreement and each Statement of Work
----------------------
hereunder shall be binding upon and inure to the benefit of the parties hereto
and thereto and their respective successors and assigns, but neither Bull nor
Peritus may assign a Statement of Work or its rights or obligations thereunder
without the prior written consent of the other.
15. Notices. Any notice, request or other communication required or
-------
permitted to be sent under this Agreement or any Statement of Work shall be
delivered by hand or mailed by registered or certified mail, return receipt
requested, or by fax subject to return fax acknowledgement of receipt, to the
respective addresses of the parties as set forth in subsection 9.(b) of this
Agreement, with a copy to the other party's legal counsel. Notice shall be
deemed effective when received. The address of each party's legal counsel is as
follows:
Peritus: Paul Gupta, Esq.
Nutter, McClennen & Fish
One International Place
Boston, Mass. 02110-2699
Telephone: (617) 439-2459
Facsimile: (617) 973-9748
-28-
<PAGE>
Bull: Thomas Gallagher, Esq.
Bull HN Information Systems Inc.
Technology Park MA02-408N
Billerica, Mass. 01821
Telephone: (508) 294-5023
Facsimile: (508) 294-5836
16. Entire Agreement. This Agreement, including any Statement of Work
----------------
attached hereto and a part hereof, contains the entire understanding and
agreement of the parties with respect to the subject matter of this Agreement
superseding all prior proposal and communications and there are no promises,
covenants or undertakings other than those expressly set forth herein. This
Agreement may not be modified except by a Statement of Work or another writing
signed by authorized representatives of both parties.
17. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts (without reference
to its law of conflicts-of-law).
18. Time of the Essence. The parties agree that time is of the essence of
-------------------
this Agreement.
19. Due Incorporation, Valid Existence, Good Standing and Due Authorization:
-----------------------------------------------------------------------
(a) Peritus, by its execution and delivery of this Agreement and by
its execution and delivery of each Statement of Work hereunder, hereby and
thereby represents and warrants to Bull that it is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and duly qualified and in good standing as a foreign corporation
in each other jurisdiction where a failure to be so qualified and in such
standing would have a material adverse effect upon its business, assets or
prospects or upon its ability to perform its obligations under this Agreement or
any Statement of Work, and that the execution and delivery of this Agreement or
such Statement of Work, as the case may be, has been duly authorized by all
necessary corporate action on its part, requires no approval or consent of any
other party or any governmental authority that has not been obtained, does not
and with the passage of time, the giving of notice, or both, will not,
constitute a violation or breach of, or give rise to the creation of any lien or
encumbrance upon any of the properties or assets of Peritus under any contract,
agreement or instrument to which it is a party or by which it is bound, or any
judgment, order or decree of any court or any law, rule or regulation of any
governmental authority having jurisdiction, and is the valid and binding
obligation of Peritus, enforceable against it in accordance with its terms.
-29-
<PAGE>
(b) Bull, by its execution and delivery of this Agreement and by its
execution and delivery of each Statement of Work hereunder, hereby and thereby
represents and warrants to Peritus that it is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and duly qualified and in good standing as a foreign corporation
in each other jurisdiction where a failure to be so qualified and in such
standing would have a material adverse effect upon its business, assets or
prospects or upon its ability to perform its obligations under this Agreement or
any Statement of Work, and that the execution and delivery of this Agreement or
such Statement of Work, as the case may be, has been duly authorized by all
necessary corporate action on its part, requires no approval or consent of any
other party or any governmental authority that has not been obtained, does not
and with the passage of time, the giving of notice, or both, will not,
constitute a violation or breach of, or give rise to the creation of any lien or
encumbrance upon any of the properties or assets of Bull under any contract,
agreement or instrument to which it is a party or by which it is bound, or any
judgment, order or decree of any court or any law, rule or regulation of any
governmental authority having jurisdiction, and is the valid and binding
obligation of Bull, enforceable against it in accordance with its terms.
(c) Peritus represents and warrants to Bull that it has reviewed and
will carefully review the services to be performed under this Agreement and each
Statement of Work, and that each Peritus employee is qualified and experienced
in education, training and knowledge to perform such work, it being understood
and agreed by Peritus that Bull has an independent reputation in the software
service industry and with its customers which must be preserved.
20. Severability. If any term or provision of this Agreement or a Statement
------------
of Work or the application thereof shall be determined to be invalid or
unenforceable, the same shall not affect the enforceability of any other
provision contained herein or therein. In addition, if one or more of the
provisions in this Agreement or a Statement of Work shall for any reason be held
to be unenforceable, such provision or provisions shall be construed by limiting
it or them so as to be enforceable to the full extent then permitted by
applicable law.
WITNESS the execution and delivery hereof as an instrument under seal as of the
date first above written.
PERITUS SOFTWARE SERVICES, INC.
By: /s/Dominic K. Chan
----------------------------------
Its
-30-
<PAGE>
Bull HN INFORMATION SYSTEMS, INC.
By: illegible
----------------------------------
Its
-31-
<PAGE>
EXHIBIT 10.24
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
LICENSE AGREEMENT
This License Agreement ("Agreement") is by and between Bull HN Information
Systems Inc., a Delaware corporation, with offices at 300 Concord Road,
Billerica, Massachusetts 01821 by and through its Integris division ("Bull HN")
and Peritus Software Services Inc., a Massachusetts corporation with offices at
304 Concord Road, Billerica, Massachusetts 01821-3485 ("Peritus") and is
effective as of July 29, 1996 (the "Effective Date").
Peritus is the owner of certain software sometimes referred to as Auto
Enhancer/2000 and certain processes and methodologies sometimes referred to as
Automate:2000.
Bull HN desires a license to use and to market such software, processes and
methodologies to provide Year 2000 Services to GCOS 7 Customers and GCOS 8
Customers;
Bull HN has developed or will develop certain software sometimes referred to as
GCOS 7 and GCOS 8 Front Ends; and
Peritus desires a license to use and to market such GCOS 8 Front Ends.
In consideration of the foregoing and the mutual covenants contained herein,
Bull HN and Peritus agree as follows:
ARTICLE 1 - DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 "Bull" shall mean Compagnie des Machines Bull, a French company and all of
its subsidiaries, regardless of tier.
1.2 "Bull Intellectual Property Rights" shall mean all rights, title and
interests, including patent, trade secret, trademark, mask works and copyright
rights which Bull has or acquires in the Bull HN Licensed Products.
1.3 "Changes" shall mean improvements, enhancements, modifications, upgrades,
corrections, alterations, revisions, adaptations, updates, translations,
versions, releases, derivations and extensions which are made to Licensed
Products or to Peritus Licensed Technology.
<PAGE>
1.4 "Computer Program(s)" shall mean an ordered series of instructions or
statements, in any form, for controlling the operation of a data processor to
execute a process to be performed on data, including all data associated
therewith.
1.4.1 "Customer Computer Program" shall mean Computer Programs treated or
processed by Bull, Peritus or a Distributor using the Peritus Licensed
Products and/or the Peritus Licensed Technology.
1.5 "Customer" shall mean (i) an end-user or a prospective end-user of Licensed
Products marketed by Bull, Peritus or a Distributor or (ii) an end-user or
prospective end user of Computer Programs for whom Bull, Peritus or a
Distributor provides or offers to provide Year 2000 Services.
1.5.1 "GCOS 8 Customer" shall mean a Customer who operates a mainframe
computer running Bull's GCOS 8 operating system.
1.5.2 "GCOS 7 Customer" shall mean a Customer who operates a mainframe
computer running Bull's GCOS 7 operating system.
1.6 "Distributor" shall mean any legal entity or person who during the Term has
been granted a sublicense (i) by Bull to use or market the Peritus Licensed
Products and/or Peritus Licensed Technology and/or to provide Year 2000 Services
or (ii) by Peritus to use or market the Licensed Products and/or Peritus
Licensed Technology or to provide Year 2000 Services.
1.7 "Front Ends" shall mean software programs and modules that convert a
particular type of software code into PIL, which is utilized by the Peritus
Licensed Software.
1.8 "Licensed Products" shall mean Bull HN Licensed Products and Peritus
Licensed Products.
1.8.1 "Bull HN Licensed Products" shall mean Bull HN Licensed Software
and Bull HN Related Materials collectively.
1.8.2 "Peritus Licensed Products" shall mean Peritus Licensed Software and
Peritus Related Materials collectively.
1.9 "Licensed Software" shall mean the Computer Program(s) described in Exhibits
A1 and A2. Such Licensed Software includes, but is not limited to, any version
running on any computer system, in source code and object code forms on magnetic
media and in human readable form, and all Changes to Licensed Software developed
or acquired by the licensor hereunder during the Term. Licensed Software shall
also include Computer Program(s) which are developed or acquired by the licensor
hereunder to provide equivalent or added functionality, to supplement or to
replace the Computer Program(s)
- 2 -
<PAGE>
in whole or in part which comprise the Licensed Software and any Changes made
thereto.
1.9.1 "Bull HN Licensed Software" shall mean the Computer Programs
described in Exhibit A2.
1.9.2 "Peritus Licensed Software" shall mean the Computer Programs
described in Exhibit A1.
1.10 "LOC" or "Lines of Code" shall mean an 80 character string of computer
software code that is not solely a comment or is not solely a blank line. A LOC
shall be counted only once regardless of how may times it is treated or
processed using the Peritus Licensed Products and/or the Peritus Licensed
Technology.
1.11 "Party" in singular or plural usage, shall mean Bull HN and/or Peritus as
indicated by the context.
1.12 "Peritus Intellectual Property Rights" shall mean all rights, title and
interests, including patent, trade secret, trademark, mask works and copyright
rights which Peritus has or acquires in the Peritus Licensed Products and the
Peritus Licensed Technology.
1.13 "Peritus Intermediate Language" or "PIL" shall mean the computer software
language used by the Peritus Licensed Software to treat or process Computer
Programs.
1.14 "Peritus Licensed Technology" shall mean the Automate:2000 Requirements
Specifications, the Automate:2000 Factory Flow Chart and other Peritus processes
and methodologies set forth on Exhibit A3.
1.15 "Related Materials" shall mean information in written or documentary form,
human readable form or machine readable form in any media, used or useful in or
relating to the installation, use, operation, testing, debugging, support,
maintenance, demonstration or marketing of the Licensed Software or the Peritus
Licensed Technology, all of which are more completely identified in Exhibit B of
this Agreement.
1.16 "Subsidiary" shall mean a corporation, company, or other entity, regardless
of tier, 50% or more of whose outstanding securities representing the right,
other than as affected by events of default, to vote for the election of
directors or other governing authorities, which are now or hereafter owned or
controlled, directly or indirectly, by Peritus or Bull or by another Subsidiary
of Peritus or Bull regardless of tier; but such corporation, company, or other
entity shall be deemed to be a Subsidiary only so long as such ownership or
control exists.
- 3 -
<PAGE>
1.17 "Term" shall mean the period commencing on the Effective Date and
continuing until December 31, 2001 unless otherwise extended by mutual written
agreement of the Parties or until this Agreement is otherwise terminated in
accordance with its provisions.
1.18 "Year 2000 Services" shall mean services provided by Bull HN, Bull, Peritus
or Distributors to Customers using Peritus Licensed Products and Peritus
Licensed Technology that identify portions of Customer Computer Programs that
may cause Year 2000 type errors and/or correcting such identified portions so as
so prevent the occurrence of Year 2000 type errors.
ARTICLE 2 - LICENSE GRANTS, DELIVERY AND YEAR 2000 SERVICES
2.1 Peritus Licensed Products and Peritus Licensed Technology
2.1.1 Peritus hereby grants to Bull, under Peritus' Intellectual
Property Rights, a license to use the Peritus Licensed Products and
Peritus Licensed Technology in connection with mainframe computers
running GCOS 7 or GCOS 8 operating systems. Such license to use shall
include (i) the rights to utilize for internal business purposes,
market, make Changes, copy, display, demonstrate and prepare
derivative works, (ii) the right to sublicense the Peritus Licensed
Products and Peritus Technology to Customers for their own internal
use and (iii) the right to provide Year 2000 Services to Customers.
2.1.1.1 All derivative works prepared by Bull hereunder shall
be owned by Bull, provided however that Peritus shall retain all
of its right, title and interest in the Peritus Licensed
Products and the Peritus Licensed Technology.
2.1.1.2 Bull agrees to and hereby grants to Peritus a non-
exclusive, non-transferable, perpetual, fully paid up, royalty
free license for such derivative works.
2.1.2 Bull's right to grant sublicenses set forth in Article 2.1.1
shall include the right to grant sublicenses to Distributors of the
same or lesser scope as the license granted to Bull, provided however
that Distributors shall have no right to the following:
2.1.2.1 Make Changes.
2.1.2.2 Transfer or provide the Peritus Licensed Products or
Peritus Licensed Technology to anyone other than
Customers for their own internal use.
2.1.2.3 Have access to source code.
- 4 -
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
2.1.3 The licenses granted in Article 2.1.1 shall be worldwide and
exclusive as to all GCOS 7 Customers and all GCOS 8 Customers except
for those GCOS 8 Customers in Spain where such licenses shall be
nonexclusive.
2.1.4 All sublicenses granted to Distributors and/or Customers shall be in
writing signed by such Distributor or Customer, as applicable. Such
sublicenses shall be on terms and conditions substantially similar to the
terms and conditions upon which Bull licenses its own products.
2.1.4.1 Prior to sublicensing the Peritus Licensed Products and/or
Peritus Licensed Technology to Distributors or Customers in India,
Turkey or China, Bull will provide written notice to Peritus
including the name of the proposed Distributor or Customer, the
location of such Distributor or Customer and the terms of the
agreement applicable to the protection of intellectual property
rights. Peritus will notify Bull in writing ************
************** following receipt of such notice if it objects to the
licensing of the Peritus Licensed Products and/or Peritus Licensed
Technology in such country under the terms proposed. The Parties will
use reasonable efforts to negotiate a resolution of any such
objections within **************** following Bull's receipt of
Peritus' notice of objection. If Peritus does not provide any notice
of objection within such ******************* period, Bull shall have
the right to sublicense the Peritus Licensed Products and/or Peritus
Licensed Technology to the distributor or Customer under the proposed
terms.
2.1.5 Peritus will deliver the Peritus Licensed Products and the Peritus
Licensed Technology to Bull HN at the address set forth above within ten
(10) days following the Effective Date. Peritus shall also promptly deliver
to Bull HN, at no charge, all Changes to the Peritus Licensed Products and
Peritus Licensed Technology made or acquired by Peritus during the Term.
2.1.5.1 In the event that Peritus and Bull mutually agree that
Peritus incorporates Changes to the Peritus Licensed Products and/or
the Peritus Licensed Technology that prevent Bull from using the
Peritus Licensed Products and/or the Peritus Licensed Technology to
provide Year 2000 Services to GCOS 7 Customers or GCOS 8 Customers as
contemplated by this Agreement and as Bull had been providing such
Year 2000 Services prior to the incorporation of such Changes, Bull
will so notify Peritus in writing, and Peritus will within
******************** following receipt of such notice, deliver to
Bull a complete copy of the source code version of the
- 5 -
<PAGE>
Peritus Licensed Products and the Peritus Licensed Technology which
do not incorporate such Changes. Bull shall have the right and
Peritus hereby grants to Bull a license to use such source code
version to exercise all of its rights hereunder and perform its
obligations to its Customers.
2.2 Bull HN Licensed Products
2.2.1 Bull HN hereby grants to Peritus, under Bull's Intellectual
Property Rights, a royalty-free license to use the Bull HN Licensed
Products. Such license to use shall include (i) the rights to utilize
for internal business purposes, market, make Changes, copy, display,
demonstrate and prepare derivative works including the right to
incorporate the Bull HN Licensed Products into the Peritus Licensed
Products, (ii) the right to sublicense the Bull HN Licensed Products
to GCOS 8 Customers in Spain for their own internal use and (iii) the
right to provide Year 2000 Services to GCOS 8 Customers in Spain.
2.2.2 Peritus' right to grant sublicenses set forth in Article 2.2.1
shall include the right to grant sublicenses to Distributors,
regardless of tier, of the same or lesser scope as the license
granted to Peritus, provided however that Distributors shall have no
right to prepare derivative works of the Bull HN Licensed Products.
2.2.3 All sublicenses granted to Distributors and/or Customers shall
be in writing signed by such Distributor or Customer, as applicable.
Such sublicenses shall be on terms and conditions substantially
similar to the terms and conditions upon which Peritus licenses its
own products.
2.2.4 Bull HN will deliver to Peritus the Bull HN Licensed Products
at the address set forth above, upon availability of the Bull HN
Licensed Products for alpha and/or beta testing. Bull HN shall
promptly deliver to Peritus, at no charge, all Changes to the Bull HN
Licensed Products made or acquired by Bull HN during the Term at the
address set forth above.
2.3 Year 2000 Services
2.3.1 Bull will provide Year 2000 Services to Customers, either
directly or through Distributors only under the terms of a written
agreement executed by the Customer. Such agreement will include
provisions legally sufficient to (i) disclaim any warranties on
behalf of Peritus and Bull, including without limitation the implied
warranties of merchantability and fitness for a particular purpose
and (ii) disclaim liability for any consequential, incidental or
special damages.
2.3.2 As part of its Year 2000 Services, Bull or its Distributors
will maintain, or will require the Customer to maintain a copy of the
Customer's unmodified source code.
- 6 -
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ARTICLE 3 - ROYALTIES
3.1 In consideration of the licenses granted in Article 2.1, Bull shall
during the Term make payments to Peritus as set forth in Exhibit C.
3.2 Only licenses to Customers shall be royalty bearing and consequently
there shall be no obligation to pay royalties for rights granted to Distributors
for their right to sublicense the Peritus Licensed Products and/or Peritus
Licensed Technology.
3.3 There are ****************************************.
3.3.1 Sublicenses. Royalties for sublicenses of Peritus Licensed
Products and Peritus Licensed Technology to Customers are earned by
Peritus at the time of the grant of such sublicense by Bull to Customers
and are payable to Peritus pursuant to Article 4.
3.3.2 Year 2000 Services. Fees for the use by Bull or Distributors of
the Peritus Licensed Products and/or the Peritus Licensed Technology to
provide Year 2000 Services or for Distributors' internal use are earned
by Peritus when a Customer accepts in writing the Customer Computer
Programs for final integration and acceptance testing and are payable to
Peritus pursuant to Article 4.
3.4 Except as otherwise mutually agreed in writing by the Parties, there
shall be ********************** for upgrades and/or new releases of the Peritus
Licensed Products or Peritus Licensed Technology.
3.5 There shall be ******************** payable to Peritus for Bull's or
Distributors' use of the Peritus Licensed Products or Peritus Licensed
Technology for demonstration use.
3.6 Each sublicense for the Peritus Licensed Products and/or Peritus
Licensed Technology granted to Customers shall become fully paid-up as to
Peritus upon payment made to Peritus pursuant to Paragraph 3.1 above.
3.7 Upon written approval of Peritus, such approval not to be unreasonably
withheld, any of the Bull entities may at its option report and make payments
directly to Peritus, or to a Subsidiary of Peritus. Any additional requirements
related to such direct payments shall be negotiated directly between such Bull
entity and Peritus.
-7-
<PAGE>
3.8 Peritus shall be responsible for all income related-taxes imposed on, or
withheld from, royalty payments earned by Peritus pursuant to this Agreement. In
the event that payments to Peritus pursuant to this Agreement originate from a
different country than that country where payments are to be made the following
shall apply:
(i) Payments shall be made by Bull to Peritus net of withholding
taxes due under the originating country's law. Any reduced rates of
withholding provided by a tax treaty will be applied after receiving the
approval of the authorities of the local country, if required.
(ii) Peritus agrees to supply Bull, in due time, with the duly signed
tax forms which are required to take advantage of the reduced
withholding tax rate provided for by any such tax treaties. Such tax
forms shall be supplied once a calendar year prior to any payment to be
made hereunder during such calendar year.
(iii) Should Peritus not supply in due time the tax forms referred to
under subparagraph (ii) above, Bull shall be entitled to withhold from
gross payment, the domestic withholding tax at source provided for by
the then applicable domestic law, with regard to this type of payment.
ARTICLE 4 - REPORTING AND PAYMENT REQUIREMENTS
4.1 Bull and Peritus shall keep, and shall require Distributors to keep,
true and accurate records relating to the Licensed Products and the Peritus
Licensed Technology to the extent necessary for making reports and payments
required by the terms of this Agreement. Such records shall be open for
inspection by a mutually agreed-upon Certified Public Accountant (or the
equivalent) during the Term and for one (1) year after termination of this
Agreement, during usual business hours, but not more often than once a year.
Such audit shall relate only to the current and immediately preceding calendar
year.
4.2 Within 45 days after the end of each month for each year during which
payments are due under this Agreement, Bull shall furnish written reports to
Peritus setting forth (i) for sublicenses granted to Customers, the payments due
Peritus during the preceding calendar month and (ii) for Year 2000 Services
provided to Customers, (1) the LOC treated or processed by Bull or a Distributor
during the preceding calendar month and (2) the date upon which any Customer
accepted in writing the Customer Computer Programs for final integration and
acceptance testing. All reports shall be in the format set forth in Exhibit C.
Except as provided in this Article and in Article 4.3, such reports shall
include a remittance covering the payments then due. If a Bull entity exercises
the option specified in Paragraph 3.7, such Bull entity shall also furnish a
report to Peritus or a Subsidiary of Peritus, if applicable, setting forth the
payments due Peritus during the
-8-
<PAGE>
preceding calendar month pursuant to this Agreement in each such Bull entity
marketing territory. Each report from such Bull entity reporting directly to
Peritus shall include a remittance covering the payments then due from that
particular Bull entity.
Such reports shall be sent to Peritus at the following address:
Peritus Software Services Inc.
Contract Administrator
304 Concord Road
Billerica, Massachusetts 01821-3485
4.3 Unless otherwise mutually agreed to in writing, all payments required
under this Agreement shall be made in United States dollars. If a currency
conversion is necessary the conversion rate shall be that rate quoted in the
Wall Street Journal (i) on the first business day following the calendar month
for which royalty payments are being made and (ii) on the date of Peritus'
invoice for all other payments.
4.4 Within 45 days after the end of each month for each year during the Term
of this Agreement, Peritus shall furnish written reports to Bull HN setting
forth (i) for sublicenses of Bull HN Licensed Products granted to Customers
during the preceding calendar month, the name and location of such Customers and
(ii) for Year 2000 Services provided to Customers, the name and location of such
Customer.
4.5 Information obtained from the records and reports provided under this
Article 4 shall be held in confidence by the receiving Party, and such Certified
Public Accountant, and is not to be used for any other purpose except to verify
the accuracy of the reports, royalties and fees paid hereunder.
ARTICLE 5 - MARKETING
5.1 It is specifically agreed that Bull and Distributors may use but are not
obligated to use any of Peritus' trademarks in marketing the Peritus Licensed
Products, Peritus Licensed Technology and the Year 2000 Services.
5.2 Although Bull intends to use reasonable efforts in marketing the Peritus
Licensed Products, Peritus Licensed Technology and the Year 2000 Services, the
extent and nature of any such marketing efforts shall be determined solely by
Bull in the exercise of its business judgment. It is understood that there are
no minimum marketing obligations under this Agreement.
ARTICLE 6 - RESERVED
-9-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ARTICLE 7 - SUPPORT AND MAINTENANCE OF LICENSED SOFTWARE
7.1 Peritus Licensed Products and Peritus Licensed Technology
7.1.1 Peritus will provide technical support to Bull from 8:00 am to
5:00 p.m. EST/EDT.
7.1.2 Peritus agrees that during the Term, Peritus shall, at Peritus'
expense, maintain, at a minimum, the current and the immediately
preceding release of the Peritus Licensed Software. Should Peritus
become aware of any errors or be notified by Bull of any errors in the
Peritus Licensed Software, Peritus shall promptly take appropriate
measures to correct such errors in accordance with the schedule set
forth below. Bull may also request technical advice concerning the
installation or the operation of Peritus Licensed Products or Peritus
Licensed Technology, or may propose modification(s) thereto. Peritus
will categorize and prioritize the request for support according to the
Request Table below.
Peritus will assign, within the "Assignment Time" listed below, a technically
qualified person to address the request for support. Peritus does not guarantee
that a problem or concern that is the subject matter of a request can be
resolved. However, Peritus will make reasonable efforts to resolve all errors
and defects and address Bull's concerns arising from the request in accordance
with Article 7.1.3. Notwithstanding the foregoing, Peritus in its sole
discretion, may decide whether to seek to attempt to resolve or address a
request for an enhancement (i.e. a priority 4 request). Peritus shall maintain
records of all support requests and the responses thereto, which shall be open
for inspection by Bull.
<TABLE>
<CAPTION>
Request Table
-------------
Priority Definition Assignment Time
-------- ---------- ---------------
<S> <C> <C>
1 ************************* *******
2 ************************* *******
3 ********************* *******
4 ******************* *******
</TABLE>
7.1.3 Peritus will use its best efforts to resolve errors and defects in
accordance with the following:
-10-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(i) Priority 1: Peritus will use its best efforts to provide a work
around solution within ************** after becoming aware of such
problems, and provide a permanent correction to Bull within
***************************.
(ii) Priority 2: Peritus will use all reasonable efforts to provide
the work around within *************** after becoming aware of such
problem and provide a permanent correction within *********************
or at a later time as may be agreed to in writing by Bull.
(iii) Priority 3 and 4: Peritus will verify and respond to such
problems within **************** after becoming aware of such problem
and a correction by Peritus shall be provided in its next release or
update of the Peritus Licensed Software or Peritus Licensed Technology,
as applicable.
7.1.4 Peritus will provide update releases to the Peritus Licensed Products
and Peritus Licensed Technology which may include some or all of the following;
(i) defect (bug) fixes, (ii) new or modified functionality, or (iii) new Front-
Ends. Peritus will also provide release notes documenting changes. Peritus will
provide Bull with at least ******************************** of any new releases
or upgrades that contain new or modified functionality to the Peritus Licensed
Products and/or the Peritus Licensed Technology.
7.1.5 The support of the Peritus Licensed Software sublicensed to Distributors
or Customers shall be provided as follows:
(i) Bull shall be responsible for providing First Level Support. For
the purposes of this Paragraph "First Level Support" shall mean direct
contact with the Distributors and/or Customers as applicable, handling
inquiries, routine problem diagnosis and resolution or, in the event a
problem cannot be resolved, the obtaining of appropriate documentation
of such inquiry or problem for referral to Peritus.
(ii) Peritus shall be responsible for providing Second Level Support.
For purposes of this paragraph "Second Level Support" shall mean the
provision of personnel with such special training and experience as may
be, on a best efforts basis, appropriate to handle Distributor or
Customer inquiries, non-routine problem diagnosis and resolution, etc.,
upon referral by Bull's First Level Support personnel. Second Level
Support may also mean, if requested by Bull, direct contact with a
Distributor or Customer in certain instances.
-11-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
7.1.6 Peritus shall, throughout the Term, make such Changes to the
Licensed Software as may be necessary to make it competitive with other
vendors' Computer Programs which are functionally equivalent to the
Licensed Software.
7.1.7 There shall be ******************** to Bull for the maintenance
and support set forth herein.
7.2 Bull HN Licensed Products
7.2.1 Bull HN will provide reasonable maintenance and support to
Peritus for the Bull HN Licensed Products Monday to Friday 8:00 am to
5:00 p.m. MST, except for Bull HN scheduled holidays.
7.2.2 Should Bull HN become aware of any errors or be notified by
Peritus of any errors in the Bull HN Licensed Software, Bull HN will
take appropriate measures to correct such errors in a reasonable time.
Such decision as to when or whether to correct errors will be in Bull
HN's sole discretion. Bull HN will respond to reasonable inquiries
regarding the installation and/or operation of the Bull HN Licensed
Products.
7.2.3 The support of the Bull HN Licensed Software sublicensed to
Distributors or Customers shall be provided as follows:
(i) Peritus shall be responsible for providing First Level Support.
For the purposes of this Paragraph "First Level Support" shall mean
direct contact with the Distributors and/or Customers as applicable,
handling inquiries, routine problem diagnosis and resolution or, in the
event a problem cannot be resolved, the obtaining of appropriate
documentation of such inquiry or problem for referral to Bull.
(ii) Bull shall be responsible for providing Second Level Support.
For purposes of this paragraph "Second Level Support" shall mean the
provision of personnel with such special training and experience as may
be, on a reasonable efforts basis, appropriate to handle Distributor or
Customer inquiries, non-routine problem diagnosis and resolution, etc.,
upon referral by Peritus' First Level Support personnel.
7.2.4 There shall be ********* for maintenance and support of the Bull
HN Licensed Products.
-12-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ARTICLE 8 - TRAINING
8.1 Peritus shall provide to Bull HN the training described in Exhibit D
***********************. Such training shall be at Peritus' facilities and
Peritus shall supply all equipment, software and training materials and other
supplies required for such training. Such training may be part of regular
classes offered by Peritus. Bull shall be responsible for the travel and living
expenses of its personnel, if any. Additional training during the Term shall
also be promptly provided following written request by Bull, at Peritus' then
current most favorable rates.
ARTICLE 9 - WARRANTIES
9.1 Peritus represents and warrants that Peritus has good and clear title to
the Peritus Licensed Products and Peritus Licensed Technology free and clear of
all liens and encumbrances, and to all rights and licenses with respect thereto
granted to hereunder. Peritus further warrants that Peritus has not made and
will not make any commitments to others inconsistent with or in derogation of
the rights and licenses granted to herein, and that Peritus is free of any
obligation that would prevent it from entering into this Agreement.
9.2 Peritus further warrants that the Peritus Licensed Products and Peritus
Licensed Technology do not infringe any patent, copyright, trade secret, mask
work, trademark or other legal or equitable rights of any third party.
9.3 Peritus agrees to indemnify, hold harmless and defend Bull HN, Bull,
Distributors and Customers from and against any and all suits, proceedings at
law or in equity, and any and all liability, loss, claims, costs, damages or
expenses, including reasonable attorney's fees, arising out of or in connection
with any claim by any person that the exercise of any right granted by Peritus
hereunder to the Peritus Licensed Products or Peritus Licensed Technology
infringes any right, title, or interest, including patent, copyright, trade
secret, trademark, mask work or other proprietary rights of third parties,
provided however that Bull promptly notifies Peritus of any such claim and
provides Peritus with reasonable assistance and cooperation.
9.4 EXCEPT AS SPECIFICALLY PROVIDED HEREIN, PERITUS MAKES NO WARRANTIES AND
HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE WITH REGARD TO THE PERITUS LICENSED PRODUCTS, THE PERITUS
LICENSED
-13-
<PAGE>
TECHNOLOGY, ANY SERVICES PROVIDED HEREUNDER OR THIS AGREEMENT. IN NO EVENT SHALL
PERITUS BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES RESULTING
FROM THE PERITUS LICENSED PRODUCTS, THE PERITUS LICENSED TECHNOLOGY, ANY
SERVICES PROVIDED HEREUNDER OR THIS AGREEMENT.
9.5 Bull HN represents and warrants that Bull has good and clear title to
the Bull HN Licensed Products free and clear of all liens and encumbrances, and
to all rights and licenses with respect thereto granted to hereunder. Bull HN
further warrants that Bull HN has not made and will not make any commitments to
others inconsistent with or in derogation of the rights and licenses granted to
herein, and that Bull HN is free of any obligation that would prevent it from
entering into this Agreement.
9.6 THE BULL HN LICENSED PRODUCTS ARE PROVIDED AS IS. EXCEPT AS SPECIFICALLY
PROVIDED HEREIN, BULL HN MAKES NO WARRANTIES AND HEREBY DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH REGARD
TO THE BULL HN LICENSED PRODUCTS, ANY SERVICES PROVIDED HEREUNDER OR THIS
AGREEMENT. IN NO EVENT SHALL BULL HN BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL OR
SPECIAL DAMAGES RESULTING FROM THE BULL HN LICENSED PRODUCTS, ANY SERVICES
PROVIDED HEREUNDER OR THIS AGREEMENT.
ARTICLE 10 - TERM AND TERMINATION OF AGREEMENT
10.1 The initial Term of this Agreement shall be as set forth in Article
1.18. The Parties may agree to extend the Term of this Agreement by written
amendment in accordance with Article 14.11.
10.2 If either Party hereto shall fail to perform or observe adequately any
of the terms and conditions to be performed or observed under this Agreement,
the other Party may, (subject to the provisions of Article 14.7), give written
notice to the defaulting Party specifying the respects in which the defaulting
Party has so failed to perform or observe the terms and conditions of this
Agreement, and in the event that any defaults so indicated shall not be remedied
by the defaulting Party within 90 days after such notice, (or if such default
cannot be remedied during such ninety (90) day period then the defaulting Party
shall have commenced the remedy and proceeded diligently within 90 days after
such notice), the Party not in default within 30 days thereafter may by written
notice to the defaulting Party terminate this Agreement, and, except as provided
herein, this Agreement and all the rights herein granted to the defaulting Party
shall terminate 5 days after the defaulting Party's receipt of such notice of
Termination. No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any other breach
-14-
<PAGE>
of the same or other provisions of this Agreement, and no waiver shall be
effective unless made in writing.
10.3 If a Bull entity shall fail to perform or observe adequately any of the
terms and conditions to be performed or observed under this Agreement, Peritus
may (subject to the provisions of Article 14.7) give written notice to such Bull
entity specifying the respects in which such Bull entity has so failed to
perform or observe the terms and conditions of this Agreement, and in the event
that any defaults so indicated shall not be remedied by such Bull entity (or if
such default cannot be remedied during such ninety (90) day period then such
Bull entity shall have commenced the remedy and proceeded diligently within 90
days after such notice), then Peritus within 30 days thereafter may by written
notice to such Bull entity terminate this Agreement with respect to such Bull
entity and, except as provided herein, this Agreement and all the rights herein
granted to such Bull entity shall terminate 5 days after receipt of such notice
of Termination. Any such Termination of this Agreement with respect to an
individual Bull entity pursuant to this paragraph 10.3 shall not affect the
rights or obligations of Bull HN or any other Bull entity under this Agreement.
10.4 All sublicenses granted to Customers pursuant to this Agreement, and
all obligations, including royalty obligations with respect thereto, shall
survive any termination of this Agreement. Bull and Distributors may continue to
use the Peritus Licensed Products and Peritus Licensed Technology internally
following termination of this Agreement provided the appropriate royalty has
been paid to Peritus.
10.5 Notwithstanding any termination of this Agreement, (i) Bull and
Distributors shall continue to have those rights and licenses including the
right to retain those Peritus Licensed Products and Peritus Licensed Technology
and (ii) Peritus shall continue to have those rights and licenses including the
right to retain those Bull HN Licensed Products, only as are reasonably
necessary for to fulfill obligations to Customers under contracts entered into
up to and including the date of such termination.
10.6 Notwithstanding the provisions of Article 10.2, in the event of
Peritus' failure to fulfill any of its obligations hereunder, including without
limitation its obligations for support and maintenance pursuant to Article 7.1,
within 90 days after written notification to Peritus of such failure, Bull may
elect upon written notice to Peritus, in lieu of terminating the Agreement and
in addition to any other remedy it may have, at its sole option, to perform
Peritus' obligations and to reduce or suspend as appropriate the payments to
Peritus to reflect Peritus' failure to perform such obligations. Peritus agrees,
therefore, should Bull so elect to perform Peritus' obligations hereunder, to
provide Bull with the source code of the Peritus Licensed Software as well as
any other tool, provided that such source code or tool is reasonably necessary
for the particular Peritus' obligations that Bull has so elected to perform, and
Bull shall have such rights with respect to such source code
-15-
<PAGE>
and tools. Peritus shall, at Bull's expense, and within 30 days following the
Effective Date of this Agreement and during the Term of this Agreement, as such
source code is Changed in accordance with the terms and conditions of this
Agreement, place such source code in safekeeping with an escrow agent mutually
agreeable to both parties, which escrow agent shall be instructed to provide
such source code to Bull in accordance with the terms and conditions of this
Agreement, and an escrow agent agreement substantially in the form as attached
as Exhibit E. Peritus agrees to provide Bull HN with an updated list of the
materials placed in escrow and to allow Bull HN to audit such placements.
ARTICLE 11 - CONFIDENTIALITY
11.1 A Party receiving Confidential and Proprietary Information from the
other Party shall maintain such Confidential Proprietary Information in
confidence during the Term and for a period of 5 years following the Term. The
receiving Party shall treat the Confidential and Proprietary Information
received hereunder with the same care the receiving Party uses in the protection
of the receiving Party's own Confidential and Proprietary Information and take
reasonable precautions to limit the disclosure of such Confidential and
Proprietary Information only to its employees, employees of its Subsidiaries,
and in the case of Bull HN, to employees of Bull, contractors and consultants
with a need to know to fulfill the receiving Party's rights and obligations
pursuant to this Agreement. The receiving Party shall not otherwise copy such
Confidential and Proprietary Information in whole or in part, or make any other
use of such Confidential and Proprietary Information without the prior written
consent of the transmitting Party except as may be necessary to exercise its
rights and fulfill its obligations pursuant to this Agreement. The receiving
Party shall not divulge, in whole or in part, such Confidential and Proprietary
Information to any other third party except as provided herein without the prior
written consent of the transmitting Party and shall reproduce and include the
transmitting Party's copyright and trade secret notices on all copies of such
confidential and proprietary information.
11.2 Confidential and Proprietary Information shall mean information in
documented form or oral form the substance of which is promptly reduced to
writing and marked thereon as Confidential and Proprietary. Such Confidential
and Proprietary Information shall not include:
(a) information which was in the public domain at the time of
disclosure hereunder, or
(b) information which was rightfully in the receiving Party's
possession without binder of secrecy prior to the time of its
disclosure hereunder, or
-16-
<PAGE>
(c) information which, though originally confidential and proprietary
information, subsequently becomes part of the public knowledge or
literature through no fault of the receiving Party, as of the date of
its becoming part of the public knowledge or literature, or
(d) information which, though originally confidential and proprietary
information, subsequently is received by the receiving Party from a
third party who has disclosed the information without binder of
secrecy, as of the date of such third party disclosure, or
(e) information independently developed by the receiving Party's
employees or agents who can be shown to have had no access to
Confidential and Proprietary Information received hereunder.
Confidential and Proprietary Information disclosed under this Agreement shall
not be deemed to be within the foregoing exceptions merely because such
information is embraced by more general information in the public domain or
within the receiving Party's possession.
11.3 All other information transmitted between the Parties shall be
maintained in accordance with the copyright laws; provided that the transmitting
Party shall mark such information with a proper copyright notice and the
transmitting Party shall reproduce such copyright notice on all copies of such
information.
ARTICLE 12 - RESERVED
ARTICLE 13 - DEVELOPMENT OF SOFTWARE BY BULL COMPANIES
13.1 Nothing contained in this Agreement shall prevent Bull from developing,
acquiring or marketing, either through the use of its own personnel or through
third parties, products similar to the Peritus Licensed Products. Nothing herein
shall be construed to grant Peritus any rights in any such similar products so
developed or acquired, or any rights to the revenues of any portion thereof
derived by Bull from the use, sale, lease, sublicense or other disposal of any
such products.
13.2 Bull shall have complete right, title and interest in any Changes to
Peritus Licensed Products or Peritus Licensed Technology which Bull makes or
acquires from any third party.
-17-
<PAGE>
ARTICLE 14 - GENERAL
14.1 No Assignment. This Agreement shall be binding upon and inure to the
-------------
benefit of any corporation or other legal entity with which Bull HN may be
merged or consolidated, or to the benefit of the assignee of the entire assets
of either Party to which this Agreement relates. This Agreement shall not
otherwise be assignable without the prior written consent of the other Party.
14.2 No Agency. This Agreement shall not constitute either Party the legal
---------
representative, employee, partner, joint venturer or agent of the other, nor
shall either Party have the right or authority to assume, create, or incur any
liability or any obligation of any kind, expressed or implied, against, or in
the name of or on behalf of the other Party.
14.3 No Publicity. Neither Party shall publicize the existence or terms of
------------
this Agreement, without the prior written approval of the other Party. Further,
each Party shall use its best efforts not to disclose the terms and conditions
of this Agreement to any third party, except as required by law, or by
governmental regulation, requirement or order, or as may be necessary to
establish or assert its rights hereunder, provided however, that Peritus and
Bull shall have the right to disclose the terms and conditions of this Agreement
to Distributors.
14.4 Export Control. If Peritus or Bull exports, either directly or
--------------
indirectly, Licensed Products to any country for which the United Sates
government (or any agency thereof) requires an export control license or other
approval, Peritus or Bull, as applicable, shall first obtain such license or
approval.
14.5 Notices. Any and all written notices, communications and deliveries
-------
between Peritus and Bull HN with reference to this Agreement shall be
sufficiently made (i) on the date of mailing if sent by registered or certified
mail to the respective designated representatives, (ii) on the date following
transmission if sent by fax and followed by an original sent by US mail and
(iii) on the date of delivery if sent by express mail or personal delivery, if
sent to the addresses below, subject to change upon written notice in accordance
with this provision:
In the case of Bull: In the case of Peritus:
Bull HN Information Systems Inc. Peritus Software Services Inc.
President, Integris President
300 Concord Road 304 Concord Road
Billerica, Massachusetts 01821 Billerica, Massachusetts 01821-3485
with a copy to Legal Department at the same address.
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<PAGE>
14.6 Governing Law. The validity, interpretation and performance of this
-------------
Agreement shall in all respects be governed by the laws of the Commonwealth of
Massachusetts.
14.7 Disputes. If there is a dispute between the Parties, the Party alleging
--------
such dispute shall serve upon the other Party written notice setting forth the
nature of the dispute. If the dispute relates to a breach alleged under
paragraph 10.2, the Party receiving notice of breach shall give the other Party
written notice of the dispute within 10 days of receipt of the notice of breach.
If any dispute is not resolved to the satisfaction of the Party giving the
notice of dispute within 30 days of such notice, then such Party may, by written
notice to the other Party within an additional 30 days thereafter, request a
meeting of representatives of senior management of the Parties to occur within
30 days of such written request.
14.8 Headings. The Article headings in this Agreement are for convenience
--------
only and are not to be used to interpret this Agreement.
14.9 Force Majeure. Neither Party shall be responsible for any failure or
-------------
delay in performance due to acts of God or other causes beyond its reasonable
control.
14.10 Severability. If any term, provision, covenant or condition of this
------------
Agreement is held invalid or unenforceable for any reason, the remainder of the
provisions shall continue in full force and effect as if this Agreement had been
executed with the invalid portion thereof eliminated.
14.11 Entire Agreement. This Agreement including Exhibits A through E, sets
----------------
forth the complete and exclusive statement of the Agreement between the Parties
relating to the subject matter contained herein, and merges all prior
discussions and communications between them. Neither Party shall be bound by any
definition, condition, warranty or representation other than as expressly set
forth in this Agreement, or in an amendment subsequently set forth in writing
signed by the Parties hereto.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement,
including Exhibits A through E, which are incorporated herein and made a part
hereof, in duplicate, by their respective duly authorized officers to be
effective as of the Effective Date.
Peritus Bull HN Information Systems Inc
BY: /s/ Allen Deary BY: /s/ Jonathan J. Burbank
-------------------------------- --------------------------------
NAME: Allen Deary NAME: Jonathan J. Burbank
------------------------------ -------------------------------
TITLE: VP Finance TITLE: President Integris
----------------------------- ------------------------------
DATE: 8/9/96 DATE: 8/8/96
------------------------------- -------------------------------
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<PAGE>
Confidential materials omitted and filed
separately with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT A1 - PERITUS LICENSED SOFTWARE DESCRIPTION
1. AutoEnhancer/2000 R2, Version 5 (or currently supported release[s]) of this
product with the following functionality:
** ******************************************************
**************************************************************
*********************************************************
*************************************************************
**********************************************************.
** *******************************************************.
** *************************************************************
**************.
** **********************************************.
** **************************************************************
***********************.
** *************************************************** ******
** **************************************************************
*************************.
2. Peritus Front-Ends (with the following functionality):
*******************************************************************
**************************************************************
***********************:
** *************
** *************
** ***************
** ***************
** ****************
** ***********
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<PAGE>
Confidential materials omitted and filed
separately with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT A2 - BULL HN LICENSED SOFTWARE DESCRIPTION
********************************************************************************
********************************************************************
*********************************.
******************************************************************************
*************************************************************************
*****************************.
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<PAGE>
EXHIBIT A3 - PERITUS LICENSED TECHNOLOGY
Peritus Year 2000 Mass Change Processes and Methodologies Peritus Year 2000 Mass
Change Processes and Methodologies:
Automate: 2000 Requirements Specifications
Automate: 2000 Factory Flow Chart
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<PAGE>
EXHIBIT B - RELATED MATERIALS DESCRIPTION
1. Peritus Licensed Products
a. Documentation. The publications, in written and/or electronic
form which describe the Peritus Licensed Products and/or Services are
included within the respective product and/or service.
1. Installing AutoEnhancer:2000
2. Using AutoEnhancer:2000
3. Version X Server Flow, AutoEnhancer:2000
4. Version X Release notes, AutoEnhancer:2000
2. Peritus Licensed Technology
a. Automate:2000 Requirements Specifications, Revision 0
b. Automate:2000 Factory Flow Charts, Revision 2.1
3. Bull HN Licensed Products
The publications, in written and/or electronic form which describe the Bull HN
Licensed Products and which are or will be included in Bull's standard offering.
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<PAGE>
Confidential materials omitted and filed
separately with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT C - PAYMENTS
A. GCOS 8 and GCOS 7
1. The royalties payable to Peritus for use by Bull of the Peritus
Licensed Products and Peritus Licensed Technology to provide Year 2000 Services
for GCOS 8 and GCOS 7 Customers shall be as follows:
Cost per line of Code:
<TABLE>
<CAPTION>
Annual LOC* Fee per LOC
----------- -----------
<S> <C>
********** *****
************* *****
**************** *****
*********** *****
</TABLE>
*For the purposes of this Exhibit C, each LOC shall be counted one time,
regardless of how may times such LOC shall have been processed or treated.
2. The royalties payable to Peritus for the sublicense of the Peritus
Licensed Products and Peritus Licensed Technology to Customers shall be as
follows:
Fully Paid Up Royalties as follows:
For Sublicenses granted in 1996 ************
For Sublicenses granted in 1997 and beyond: ************
B. Other Computer Programs
In the event that Bull HN or Bull prepares derivative work(s) of the Peritus
Licensed Products or Peritus Licensed Technology that permits the treatment or
processing of Computer Programs other than GCOS 7 and GCOS 8 Computer Programs,
Bull HN and Peritus will mutually agree in writing on Fees per LOC for use by
Bull of such derivative work and on one-time royalties for sublicenses to
Customers of such derivative work.
C. Report Format
<TABLE>
<CAPTION>
Sublicenses:
-----------
Customer Amount
-------- ------
<S> <C>
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
XXX
YYY ----
Subtotal $XXX
</TABLE>
<TABLE>
<CAPTION>
Year 2000 Services: LOC LOC Rate Amount
------------------- --- -------- ------
<S> <C> <C> <C>
Bull:
----
Customer, location
Distributors:
Customer, location -----
Subtotal $ XXX
Total Payment Due $ XXX
</TABLE>
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<PAGE>
Confidential materials omitted and filed
separately with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT D - TRAINING
Peritus will provide the following classes:
1. Product Training: ******** class for up to ***** Bull employees. This
class will be offered one time. Maximum of ***** student days.
2. Technical Training: *** day class for up to ***** Bull HN employees.
This class will be offered one time. Maximum of *** student days.
3. Marketing Training: *** day class for up to ****** Bull HN employees.
This class will be offered up to two times. Maximum of ***** student days.
4. Additional training: As available at Peritus' then current rates to
Bull, Distributors and Customers.
5. Certification: Following classroom training and monitored delivery of
pilot/renovation activity, a certifying exam will be administered by Peritus.
This exam will take place in an Automate:2000 service lab environment, which
will include tools and sample code. As part of the exam, the persons seeking to
be certified will be asked to complete one or more of the following phases:
a) Assessments;
b) Look Ahead;
c) Identification;
d) Correction;
e) Verification;
f) Testing (Q. A.).
In each phase, the exam will test and review knowledge and ability to deliver
and utilize all aspects of Automate:2000 service and the AutoEnhancer/2000,
including but not limited to understanding the user interface, error messages
and file formats.
In the event that modifications, updates and enhancements to the Peritus
Licensed Products and/or Peritus Licensed Technology are provided, further
certification exams may be conducted at regularly scheduled intervals.
Peritus reserves the right to promulgate reasonable changes in the certification
testing described herein. Peritus will provide Bull with reasonable written
notice of any such changes.
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<PAGE>
EXHIBIT 10.25
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
MASTER LICENSE AGREEMENT
------------------------
This Master License Agreement ("Agreement") is made and entered into as of the
21st of October 1996, by and between Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation, having a principal place of business at
Merrill Lynch World Headquarters North Tower, World Financial Center, 250 Vesey
Street, New York, New York 10281 ("Customer") and Peritus Software Services,
Inc., a Delaware corporation, having a principal place of business at 304
Concord Road, Billerica, Massachusetts 01821 ("Licensor").
W I T N E S S E T H
- - - - - - - - - -
That, for and in consideration of the mutual promises and covenants
hereinafter contained, the parties hereto agree as follows:
ARTICLE 1 - GRANT AND SCOPE OF LICENSE
--------------------------------------
1.1 Licensor hereby grants to Customer a non-exclusive, perpetual license to
use those software products and related documentation ("Licensed Products")
described on each schedule executed by Licensor and Customer substantially in
the form of Exhibit 1 hereto ("Schedule"), commencing upon the delivery to
---------
Customer of such Licensed Products and continuing thereafter until terminated in
accordance with the provisions of the applicable Schedule.
l.2 Each Schedule, when executed by an authorized representative of both
parties, shall constitute a separate agreement and except for any provisions
herein which are specifically excluded or modified in such Schedule, each such
Schedule shall incorporate therein all of the terms and conditions of this
Agreement. Each Schedule shall be consecutively numbered to facilitate
identification and shall include a description of the Licensed Products covered
thereunder, the standard published specifications together with other mutually
agreed to specifications for the Licensed Products ("Specifications"), the site
where the server computer is installed ("Installation Site"), the date the
Licensed Products are to arrive at the Installation Site ("Scheduled Delivery
Date"), the name of the person to whom the Licensed Products are to be shipped
("Deliver To"), the applicable license fee ("License Fee"), the annual
maintenance fee ("Annual Maintenance Fee"), the name of the person to whom the
invoices for the Licensed Products should be sent ("Invoice To"), the nature and
scope of the licenses granted ("Type of License") in accordance with Sections
1.2.1 through 1.2.6 (as applicable) and such other terms and conditions as the
parties may wish to
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include. In the event of any conflict between the terms of this Agreement and
the terms of any Schedule, the terms of such Schedule shall govern. License
options may be described in Schedules in accordance with the following:
1.2.1 Server License - Licensed Products provided under this option may
be installed on and processed by the number of Server computers
installed at the Installation Site indicated on the Schedule. As used
herein "Server" computer shall mean a data station that provides
facilities to other stations in a computer network.
1.2.2 Client License - Licensed Products provided under this option may
be installed on and processed by the number of workstation and/or
personal computers ("Clients") indicated on the Schedule, regardless of
their location, which have electronic access to the Server computer
located at the Installation Site indicated on the Schedule.
1.2.3 Concurrent User License - Licensed Products provided under this
option may be installed on and processed by the Server computer located
at the Installation Site indicated on the Schedule, and may be installed
on and simultaneously processed by the number of workstation and/or
personal computers ("Concurrent Users") indicated on the Schedule,
regardless of their location, which have electronic access to the Server
computer located at the Installation Site indicated on the Schedule.
1.2.4 End User License - Licensed Products provided under this option
may be installed on and processed by the Server computer located at the
Installation Site indicated on the Schedule, and may be installed on and
processed by the number of workstation and/or personal computers ("End
Users") indicated on the Schedule, regardless of their location, which
have electronic access to the Server computer located at the
Installation Site indicated on the Schedule.
1.2.5 Workstation License - Licensed Products provided under this option
may be installed on and processed by the number of workstation and/or
personal computers ("Workstations") indicated on the Schedule,
regardless of their location.
1.2.6 Enterprise License - Licensed Products provided under this option
may be used by Customer without limitation as to the number or location
of Server, workstation and/or personal computers the Licensed Products
may be installed on or processed by.
1.3 Customer, its parent company or any of its or their subsidiary or
affiliated companies, may execute Schedules in accordance with the terms and
conditions of
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this Agreement. In such event, any such entity shall be considered the
"Customer" as such term is used herein and shall be subject to all of the terms
and conditions of this Agreement, except as expressly provided in the Schedule.
Any such Schedule shall be deemed to be a two-party agreement between Licensor
on the one hand and the Customer entity on the other hand; provided that any
discount applicable to Customer shall apply to such Schedule and such Schedule
shall be counted toward the calculation of any discount.
1.4 Customer may make additional copies of each of the Licensed Products for
use at the applicable Installation Site and shall be entitled to keep copies of
the Licensed Products off Customer's premises for purposes of safekeeping,
without payment of an additional license fee therefor. Customer may, at any time
upon written notice to Licensor and at no charge, transfer any license to use
the Licensed Products to any other Customer site and/or computer, or to a
computer belonging to a third party (including without limitation, third party
service bureau vendors who may process Customer's business) with whom the
Customer has contracted to obtain service if said party agrees in writing to
comply with the terms of this Agreement and restrict the use of the Licensed
Products to Customer. Customer may, at no charge and without notice, use any
Licensed Product at another site and/or computer on a temporary basis for the
purposes of program testing and emergency backup and may provide the Licensed
Products to a third party who has been retained by Customer to load the Licensed
Products onto Customer's computing equipment at Customer's site or such third
party's site.
1.4.1 Customer may, without notice and subject only to any express
restrictions in the applicable Schedule as to the number of users
authorized to use the Licensed Products, install and process the Licensed
Products on alternative workstations, personal or portable computers at any
time the Licensed Products are not being used on the workstation and/or
personal computer on which the Licensed Products would normally reside.
1.4.2 With respect to any license that restricts the use of the Licensed
Products to a particular Installation Site, if the workload for which such
Licensed Products are used is transferred to another Installation Site, the
Customer may use the Licensed Products at the original and new Installation
Sites for a period of six (6) months, at no additional charge, to support
parallel operations and testing of the transferred workload. Upon
expiration of this period the original Installation Site will cease using
the Licensed Products.
1.4.3 If Customer desires to use the Licensed Products in combination with
a operating system, database or other computer programs that the Licensed
Products were not designed to operate with and, a different version of the
Licensed Products is required to operate with such system, database or
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programs and is generally available from the Licensor, Customer may
acquire a license for the required version of the Licensed Products for
a fee not to exceed the lesser of (i) the then current list license fee
for the required version of the Licensed Products less the license fee
paid for the original version of the Licensed Products, or (ii) the
difference in then current list license fees for the original and
required versions of the Licensed Products, discounted by the percent
specified in Exhibit 2 to this Agreement. Customer may use both versions
of the Licensed Products until the new version of the Licensed Products
has been placed into Production. "Production" shall be deemed to occur
on the date the Customer is using the new version of the Licensed
Products in a "live" environment to support the business requirements
for which the new version of the Licensed Products has been acquired.
Upon use of such Licensed Products in Production, Customer shall, except
for archival purposes, discontinue use of the original version of the
Licensed Products and shall use only the new version of the Licensed
Products.
1.5 As between Licensor and Customer, Licensor retains title to the Licensed
Products provided hereunder and does not convey any proprietary interest therein
to Customer other than the licenses as specified herein.
1.6 Customer acknowledges that Licensor considers the Licensed Products provided
hereunder to be proprietary to Licensor. For as long as the Licensed Products
are in Customer's possession, Customer agrees that unless Customer has obtained
Licensor's prior written consent (such consent not to be unreasonably withheld),
Customer shall keep the applicable Licensed Products confidential and prevent
disclosure of such Licensed Products to any person, firm or enterprise other
than Customer, its subsidiaries and affiliated companies and its or their
employees (for purposes not inconsistent with Customer's permitted use of the
Licensed Products), employees or representatives of Licensor, or other persons
on Customer's premises for purposes related to Customer's permitted use of the
Licensed Products.
1.6.1 Notwithstanding the foregoing, Customer shall not be required to
take any steps to keep confidential and prevent disclosure of the
Licensed Products other than those steps Customer normally takes to
protect its own similar confidential information. Customer's obligation
of confidentiality shall not apply to information which: (i) is already
known to Customer at the time of disclosure; (ii) is obtained by
Customer from a third party without restrictions; (iii) is in the public
domain through no fault of Customer; (iv) is independently developed by
Customer; or (v) is required to be disclosed by law or court order
(provided that the Customer shall notify Licensor of any such
requirement prior to disclosure in order to afford Licensor an
opportunity to seek a protective order to prevent or limit disclosure).
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<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
1.7 Licensor hereby acknowledges and agrees that Customer shall have the right
to modify any of the Licensed Products provided to Customer hereunder, create
additional computer programs that operate in combination with the Licensed
Products, or may pay the Licensor a fee to provide such modifications or
additional computer programs and that Customer may use said modifications and/or
additional computer programs in combination with the Licensed Products provided
to Customer hereunder. Licensor further agrees that all right, title and
interest in and to said modifications or additional computer programs
(including, without limitation, the Source Code for said modifications or
additional computer programs and the right to own all copyrights and patents
relating thereto) and, any data used in combination with, or output derived from
the use of the Licensed Products or said modifications or additional computer
programs, shall vest in Customer and shall be the sole and exclusive property of
Customer.
1.8 Licensor agrees to give Customer discounts for the Licensed Products and
services not included in the license or maintenance fee in accordance with the
provisions of Exhibit 2 which is attached hereto and made a part hereof.
---------
1.9 This Agreement shall commence as of the date first above written and shall
continue in effect thereafter unless and until terminated in accordance with the
provisions of this Agreement.
ARTICLE 2 - DELIVERY; INSTALLATION; ACCEPTANCE
----------------------------------------------
2.1 Licensor agrees to deliver the Licensed Products on the Scheduled Delivery
Date to the applicable Installation Site.
2.2 Licensor agrees to install the Licensed Products ready for use and in good
working order at the applicable Installation Site as soon as possible after
delivery *** *********************************. Licensor agrees to repair any
damage caused by Licensor, its employees, agents, or contractors during
installation and Licensor will hold Customer harmless from any and all claims,
losses, or expenses (including reasonable attorneys' fees) arising from such
installation.
2.3 Following successful completion of the installation of each Licensed
Product, Licensor shall tender such Licensed Product to Customer for On-Site
acceptance testing and Customer shall conduct an acceptance test of such
Licensed Product for a period of ******************* (the "Acceptance Test"), to
determine if the Licensed Product performs in accordance with: (i) the
Specifications; (ii) selected other test criteria as are mutually agreed to by
Licensor and Customer in the applicable
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Schedule, [(i) and (ii) are collectively the "Acceptance Test Criteria")]; and
(iii) the requirements and expectations of Customer. Licensor agrees to assist
Customer, as needed, in the performance of such Acceptance Test. For the
purposes of this Agreement, "business days" shall be those days from Monday
through and including Friday which are not national banking holidays.
2.4 Customer agrees to notify Licensor in writing within ************
after expiration of the Acceptance Test of either its acceptance or rejection of
the applicable Licensed Product.
2.4.1 If Customer rejects any Licensed Product, Customer may: (i)
immediately terminate the applicable Schedule without any further
obligation or liability of any kind; or (ii) require Licensor to
correct the deficiencies disclosed by the Acceptance Test Criteria
and repeat such Acceptance Test until successfully completed,
reserving the right to terminate as aforesaid at anytime. Upon any
such termination, Customer agrees to return the Licensed Products
involved, together with any materials furnished to Customer by
Licensor in connection therewith, without further obligation or
liability of any kind to Licensor.
2.4.2 If Customer accepts any Licensed Product, Licensor may invoice
Customer, at any time after the date that Customer has notified
Licensor in writing of the acceptance of such Licensed Product (the
"Acceptance Date"), for the applicable License Fee, and such invoice
shall be payable by Customer within thirty (30) days of Customer's
receipt of said invoice.
ARTICLE 3 - SOFTWARE ESCROW
---------------------------
3.1 Upon execution of any Schedule hereunder, Licensor agrees to keep and
maintain current in escrow a master tape of the source code for each Licensed
Product, as well as any enhancements, corrections and related documentation
("Source Code"). Licensor will deliver the Source Code for the Licensed Products
covered under such Schedule to the third party designated below, or any
successor thereof, who shall act as escrow agent ("Escrow Agent"). The Escrow
Agent shall be paid by Licensor. In the event that Licensor shall be unwilling
or unable to maintain the Licensed Products for any reason, including, but not
limited to, suspension or discontinuance of business or unwillingness to support
and maintain the Licensed Products, the Escrow Agent shall be instructed by
Customer to deliver a copy of the tape containing the Source Code to the
Customer at the applicable Installation Site. In the event that Customer
receives the Source Code in the manner provided
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hereunder, such Source Code shall be subject to the terms of Section 1.6 and
1.6.1 herein. Title to the Source Code shall remain with Licensor. Customer
shall have the right at any time to contact the Escrow Agent for purposes of
confirming the existence of the Source Code and documentation including updates
thereto and for verification of the instructions to the Escrow Agent to release
the Source Code under the circumstances specified hereto in this paragraph. In
addition, upon Customer's request, Licensor shall enter into and shall cause the
Escrow Agent to enter into a separate source code escrow agreement for the
benefit of Customer, in a form reasonably acceptable to all such parties.
Escrow Agent:
------------------------------------
------------------------------------
------------------------------------
3.1.1 When Customer shall come into possession of the Source Code in
accordance with this Agreement, Customer shall thereafter have the
absolute right to modify such Source Code to perform any functions
which Customer deems desirable, limited, however, to Customer's
internal use only. The Source Code as so modified shall, nonetheless,
remain subject to the same restrictions on use, reproduction and
disclosure as are contained in this Agreement with respect to the
Licensed Products. Upon any such modification, Licensor shall
thereafter be released from any responsibility to maintain the
Licensed Products.
ARTICLE 4 - DOCUMENTATION AND TRAINING
--------------------------------------
4.1 On the Scheduled Delivery Date for each of the Licensed Products, Licensor
shall deliver to Customer at the applicable Installation Site two (2) copies of
its standard operational instructions and documentation for such Licensed
Products. Such operational instructions and program documentation shall include,
but shall not be limited to, the following: a Licensed Products Users' Guide; a
copy of associated control statements required for operation, and use of the
object code (including control statements for assembly, linkage and other
utilities) in machine readable form; and any other documentation used to
describe the Licensed Products and which is provided by Licensor to its other
customers.
4.1.1 The documentation furnished in accordance with Section 4.1
hereof shall accurately describe the installation procedures, user
instructions and internal operating logic of the Licensed Products
provided hereunder.
4.1.2 If the documentation described in Section 4.1 is revised at
any time or if additional documentation is developed by Licensor with
respect to the Licensed Products, Customer shall be entitled to
receive, at no charge for so long as maintenance services are to be
provided by Licensor in accordance
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
with Article 5 hereof, copies of such revised or additional
documentation produced by Licensor.
4.1.3 Customer shall have the right to reproduce any documentation
provided hereunder in order to satisfy its own internal requirements
provided that such reproduction shall solely be for the use of
Customer and shall contain Licensor's proprietary and/or copyright
notice(s). If Customer requests Licensor to furnish additional copies
of any such documentation, Licensor shall furnish such additional
copies to Customer at Licensor's then current standard charge.
4.1.4 Unless otherwise expressly agreed in a Schedule, all
documentation, materials and output derived from the use of the
Licensed Products shall be in the English language, or if requested
by Customer and if available, the language spoken in the jurisdiction
where the Licensed Products are used.
4.2 For each Licensed Product at each Installation Site, Licensor shall provide
to Customer *********************** training, orientation and technical support
sufficient to enable an initial and adequate number of Customer personnel to use
such Licensed Product together with any additional training, orientation and
technical support mutually agreeable to Customer and Licensor, or otherwise
provided by Licensor to its other commercial customers. The location of such
training, orientation and technical support shall be at the applicable
Installation Site or at such other mutually agreed upon location(s). The
scheduling for such training, orientation and technical support shall be
determined by Customer.
4.2.1 Additional training, orientation and other support services
not otherwise specified herein or in the applicable Schedule
**************** will be furnished by Licensor at Customer's request,
at Licensor's standard, published charges then in effect for same.
4.3 Customer may video or audio tape for Customer's own use any training session
provided by Licensor and may reproduce any associated documentation, manuals,
and coding sheets for Customer's own use provided that all titles, logos and
copyrights are also reproduced.
ARTICLE 5 - MAINTENANCE OF LICENSED PRODUCTS
--------------------------------------------
5.1 Commencing upon the date of delivery of each Licensed Product and
continuing thereafter in accordance with the provisions of this Agreement,
Licensor
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
agrees to provide the following maintenance services for such Licensed Product
("Maintenance Services"):
5.1.1 Licensor shall correct any failure of the Licensed Product to
operate in accordance with the applicable Acceptance Test Criteria.
5.1.2 Licensor shall provide to Customer all revisions, updates,
improvements, modifications, corrections, releases and enhancements
(the "Updates") to the Licensed Products. Such Updates shall not
degrade the performance, functioning or operation of the Licensed
Products provided hereunder. If any such Updates are acceptable to
Customer, Licensor agrees to give Customer all necessary assistance
to install same, at no cost to Customer. If any such Update is not
acceptable to Customer, Customer may refuse to accept same, and, in
such event, Licensor agrees to maintain the Licensed Product in the
form in effect on the date Licensor requested Customer to accept any
such Update. For purposes of this Agreement, an Update once
incorporated into any Licensed Product hereunder shall be considered
a "Licensed Product" for all purposes hereunder.
5.1.3 Licensor shall make available to Customer, *******************
any and all modifications to each Licensed Product that may be
required to enable same to operate in conjunction with any new
generally available releases and versions of the operating system,
database and other computer programs with which the installed version
of the Licensed Products have been designed to operate.
5.1.4 Licensor shall provide remote technical assistance and
consultation to Customer at any time during Customer's normal working
hours.
5.1.5 Licensor shall correct any malfunction, defect or
nonconformity in each Licensed Product provided hereunder following
telephonic notification by Customer to Licensor of any such
malfunction, defect or nonconformity which prevents the Licensed
Product from performing in accordance with the Acceptance Test
Criteria, the documentation provided hereunder and such other
warranties, descriptions and specifications as may be set forth
herein or in a Schedule. Licensor agrees to respond by telephone to
any such request made during normal business hours, Monday through
Friday, **************** *****. If in the determination of Customer,
any malfunctions, defect or nonconformity cannot be satisfactorily
corrected through such telephone communication, Licensor agrees to
respond ***************************************
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
*********************************************************************
******************************** of Customer's initial request. If
such problem is the result of Customer misuse of Licensed Product or
unrelated to Licensed Product, Customer shall reimburse Licensor at
Licensor's then current published standard rates for such services.
5.1.6 Licensor will repair any damage caused by its employees,
agents, or contractors while performing the Maintenance Services and
Licensor will hold Customer harmless from any and all claims, losses,
or expenses (including reasonable attorneys' fees) arising from such
Maintenance Services.
5.1.7 Licensor will provide Customer with any new Licensed Product
which incorporates the function of or is intended to replace a
Licensed Product which Customer has under Maintenance Services, or
which Customer has licensed but for which Licensor had made
Maintenance Services generally unavailable for reasons other than
Customer's failure to renew Maintenance Services.
5.2 Commencing upon the date of delivery of each Licensed Product *************
***************** year from the Acceptance Date thereof, Licensor shall provide
Maintenance Services ***** to Customer. Thereafter, Licensor shall provide
Maintenance Services for the Annual Maintenance Fee set forth on the applicable
Schedule, which shall not exceed ********* of the applicable License Fee set
forth on the applicable Schedule.
5.2.1 Notwithstanding anything to the contrary contained in
Section 5.2, **************************** the Annual Maintenance Fee
for any of the Licensed Products unless such Annual Maintenance Fee
********************************************, whereupon Licensor may
then ******** the Annual Maintenance Fee effective upon the second
and each succeeding anniversary of the Acceptance Date of the
Licensed Products involved provided that such increase shall not
******* ******** of the Annual Maintenance Fee in effect for the
twelve (12) month period immediately prior to ************* and
provided further that after ***************** the charge payable by
Customer shall not exceed Licensor's then current standard charge for
such service.
5.2.2 Licensor agrees to invoice Customer annually in advance for
the Annual Maintenance Fee at least sixty (60) days prior to the
anniversary of the Acceptance Date for the Licensed Product involved
and shall prorate the first Annual Maintenance Fee for each Licensed
Product so that all
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Maintenance Services shall expire as of December 31 of each year.
Each such invoice shall be payable within thirty (30) days of the
anniversary of the Acceptance Date; provided, however, that Customer
shall have the right to terminate Maintenance Services at any time
upon written notice to Licensor.
5.2.3. Customer may reinstate Maintenance Services for any Licensed
Product hereunder by paying a reinstatement charge consisting of an
amount equivalent to the pro rata portion of Annual Maintenance Fee
that would have been due hereunder for the period elapsed since
termination; provided, however, that such reinstatement charge shall
not exceed **************** of the license fee for such Licensed
Product in effect at the time of reinstatement.
ARTICLE 6 - WARRANTIES
----------------------
6.1 Licensor warrants to Customer that: (i) Licensor has the right to
furnish to Customer the Licensed Products and other materials covered hereunder
free of all liens, claims, encumbrances and other restrictions except as stated
to the contrary herein; (ii) Customer shall quietly and peacefully possess the
Licensed Products and other materials furnished hereunder subject to and in
accordance with the provisions of this Agreement; and (iii) Customer's permitted
use and possession of the Licensed Products and other materials will not be
interrupted or otherwise disturbed by any entity asserting a claim under or
through Licensor.
6.2 Licensor warrants that each of the Licensed Products: (i) shall be
free from any defects in material and workmanship; and (ii) shall perform in
accordance with the applicable Acceptance Test Criteria and Licensor's operating
and user documentation applicable to the version of the Licensed Products
provided to Customer hereunder and such other warranties, descriptions and
specifications set forth hereunder.
6.3 Licensor warrants to Customer that the documentation provided by
Licensor hereunder will faithfully and accurately reflect the Licensed Products
provided to Customer hereunder.
6.4 Licensor warrants that commencing upon the delivery of each Licensed
Product ******************************** from the Acceptance Date thereof,
Licensor shall, ************************* maintain such Licensed Product in
accordance with Article 5, and thereafter for so long as Customer has subscribed
to Maintenance Services hereunder.
11
<PAGE>
6.5 Licensor warrants that any Maintenance Services or other services
provided by Licensor hereunder will be performed in a professional manner by
qualified personnel.
6.6 Licensor warrants that, unless otherwise expressly provided for and
disclosed on a Schedule, the Licensed Products will be provided to Customer free
of any "virus", "worm", "self destruction", "disabling", "lock out" or
"metering" device, as such terms are understood in the computer industry, which
could impair Customer's use of the Licensed Products.
6.7 Licensor warrants and covenants that no employee, agent or
representative of Customer has been offered, shall be offered, has received, or
shall receive, directly or indirectly, any benefit, fee, commission, dividend,
gift, or consideration of any kind in connection with this Agreement. Licensor
will not, at any time, offer gratuities or any merchandise, cash, services, or
other inducements to the employees of Customer. Violation of this provision
shall be grounds for immediate termination of this Agreement and all Schedules
executed hereunder.
6.8 Licensor further warrants and represents that the Licensed Products
provided to Customer hereunder are compliant with the Standards For Year 2000
Operation (as such term is defined below). Licensor agrees to provide, upon
request by Customer, evidence sufficient to demonstrate adequate testing of the
Licensed Products to meet the foregoing requirements. For the purposes of this
Agreement, the Standards For Year 2000 Operation shall mean that the occurrence
in or use by the Licensed Products of dates on or after January 1, 2000 (the
"Millennial Dates") will not adversely affect the performance of the Licensed
Products with respect to date- dependent data, computations, output, or other
functions (including, without limitation, calculating, comparing and sequencing)
and that the Licensed Products will create, store, process and output
information related to or including Millennial Dates without errors or
omissions. In the event that the Licensed Products fail to so comply, Licensor
shall, promptly upon request by and at no charge to Customer, furnish such
materials and services as shall be necessary to bring the Licensed Products into
compliance. The warranty set forth in this Section 6.8 shall apply only to the
operation of the Licensed Products themselves, and shall not be understood as a
warranty of the Licensed Products' ability to identify and correct Millenial
Dates in other programs.
12
<PAGE>
ARTICLE 7 - PATENT AND COPYRIGHT INFRINGEMENT
---------------------------------------------
7.1 Licensor agrees to defend and/or handle at its own expense, any claim
or action against Customer, its parent company, and/or its or their subsidiaries
or affiliated companies, for actual or alleged infringement of any patent,
copyright or similar property right (including, but not limited to,
misappropriation of trade secrets) based upon the Licensed Products or any other
materials furnished hereunder by Licensor or based on Customer's use thereof.
7.1.1 Licensor shall have the sole right to conduct the defense of
any such claim or action and all negotiations for its settlement or
compromise, unless otherwise mutually agreed to in writing between
the parties hereto; provided, however, that Licensor may not hold
Customer to any settlement or agreement without its prior written
consent.
7.2 Licensor further agrees to indemnify and hold Customer, its parent
company, and/or its or their subsidiaries and affiliated companies, harmless
from and against any and all liabilities, losses, costs, damages, and expenses
(including reasonable attorneys' fees) associated with any such claim or action
incurred by Customer, its parent company, and/or its or their subsidiaries or
affiliated companies in accordance with this Article 7.
7.3 Licensor agrees to give Customer prompt written notice of any threat,
warning or notice of any such claim or action against Licensor or any other user
or any supplier of components of the Licensed Product covered hereunder, which
could have an adverse impact on Customer's use of same, provided Licensor knows
or has reason to know of such claim or action.
13
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ARTICLE 8 - CONFIDENTIAL INFORMATION OF CUSTOMER
------------------------------------------------
8.1 During the term of this Agreement and for a period of five (5) years
from the date of termination of this Agreement, Licensor will regard and
preserve as confidential all information related to the business of Customer,
its parent company, and/or its or their subsidiaries, affiliated companies or
clients that may be obtained by Licensor from any source as a result of this
Agreement. Licensor will not, without first obtaining Customer's prior written
consent, disclose to any person, firm or enterprise, or use for its benefit, any
information relating to the pricing, methods, processes, financial data, lists,
apparatus, statistics, programs, research, developments or related information
of Customer, its parent company, and/or its or their subsidiaries, affiliated
companies or clients concerning past, present or future business activities of
said entities.
8.2 Notwithstanding the foregoing, Licensor shall not have an obligation
of confidentiality with respect to information which: (i) is already known by
Licensor at the time of disclosure without restriction or breach of any
agreement; (ii) is obtained from a third party without restriction or breach of
this Agreement; (iii) is in the public domain through no fault of the Licensor;
(iv) is independently developed by Licensor; or (v) is required to be disclosed
by law or court order (provided that the Licensor shall notify the Customer of
any such requirements prior to disclosure in order to afford Customer an
opportunity to seek a protective order to prevent or limit disclosure).
ARTICLE 9 - TAXES
-----------------
9.1 Customer agrees to pay (in accordance with Section 9.2 below) all
taxes levied by a duly constituted taxing authority against or upon the Licensed
Product or their use, or arising out of this Agreement, including Value Added
Tax ("VAT") and/or any similar, additional or replacement duty, levy or tax
applicable to the fees payable under this Agreement or any services provided
hereunder, exclusive, however, of personal property taxes and taxes based on
Licensor's income or gross receipts, which taxes shall be paid by Licensor.
Licensor will cooperate with Customer in obtaining any VAT refund available to
Customer.
9.2 Customer agrees to pay any tax for which it is responsible under the
terms of Section 9.1 hereof, which may be levied on or assessed against Customer
directly, and, if any such tax is paid by Licensor, to reimburse Licensor
therefor, upon receipt by Customer of proof of payment acceptable to Customer.
14
<PAGE>
ARTICLE 10 - MATERIAL BREACH
----------------------------
10.1 In the event of any material breach of, or material misrepresentation
relating to, any Schedule by either party, the other party may terminate said
Schedule by giving thirty (30) days' prior written notice thereof and/or pursue
any other remedies and rights at law or in equity; provided, however, that such
Schedule will not terminate at the end of said thirty (30) days' notice period
if the party in breach has cured the misrepresentation or breach of which it has
been notified prior to the expiration of said thirty (30) days.
10.2 IN NO EVENT SHALL EITHER PARTY BE LIABLE, ONE TO THE OTHER, FOR
INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH
THE FURNISHING, PERFORMANCE, OR USE OF THE LICENSED PRODUCTS AND/OR SERVICES
PROVIDED FOR IN THIS AGREEMENT, EXCEPT TO THE EXTENT SUCH DAMAGES ARE INCLUDED
IN AN AWARD AGAINST CUSTOMER RESULTING FROM A CLAIM FOR WHICH CUSTOMER IS
INDEMNIFIED HEREUNDER AND EXCEPT FOR PERSONAL INJURY OR DEATH, OR DAMAGE TO REAL
PROPERTY.
ARTICLE 11 - EXCUSABLE DELAYS
-----------------------------
11.1 In no event shall either party be liable one to the other, for any
delay or failure to perform hereunder, which delay or failure to perform is due
to causes beyond the control of said party, including, but not limited to, acts
of God; acts of the public enemy; acts of the United States of America, or any
state, territory or political division of the United States of America, or of
the District of Columbia or any foreign government having jurisdiction over the
parties; fires; floods; epidemics; quarantine restrictions; strikes; freight
embargoes; and unusually severe weather conditions.
11.1.1 Notwithstanding the provisions of Section 11.1 hereof, in
every case the delay or failure to perform must be beyond the control
and without the fault or negligence of the party claiming excusable
delay.
11.2 Performance times under any Schedule shall be considered extended for
a period of time equivalent to the time lost because of any delay which is
excusable under this Article 11. If any such excusable delay shall last for a
period of more than thirty (30) consecutive calendar days, the party not relying
on the excusable delay, at its option, may terminate such Schedule.
15
<PAGE>
ARTICLE 12 - THIRD PARTY CLAIMS
-------------------------------
12.1 Each party will indemnify, defend, and hold harmless the other from
any claims, losses, or expenses (including reasonable attorneys' fees) arising
from third party claims relating to or arising out of (i) the negligence, breach
of contract, or misrepresentation of such party, its officers, employees,
agents, or representatives, or (ii) the assertion of any strict liability
standard.
16
<PAGE>
ARTICLE 13 - NOTICES
--------------------
13.1 Any notices or other communications required or permitted to be given or
delivered under this Agreement shall be in writing (unless otherwise
specifically provided herein) and shall be sufficiently given if delivered
personally or mailed by first-class mail, postage prepaid, to Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Merrill Lynch World Headquarters, World
Financial Center - South Tower, New York, NY 10080-6105 Attention: Group
Manager-Systems & Technical Services Contracting, and to Peritus Software
Services, Inc., 304 Concord Road, Billerica, MA 01821, Attn: Julian Chan, or to
such other address or addressee as either party may from time to time designate
to the other by written notice.
13.2 Any such notice or other communication shall be deemed to be given when
it is personally delivered or as of the date it is placed in the mails in the
manner specified.
ARTICLE 14 - ADVERTISING OR PUBLICITY
-------------------------------------
14.1 Neither party shall use the name or symbol of the other in advertising
or publicity releases without securing the prior written consent of the other.
ARTICLE 15 - ASSIGNMENT
-----------------------
15.1 This Agreement shall be binding upon the parties and their respective
legal successors and permitted assigns.
15.2 Neither party may assign this Agreement and/or any Schedules hereunder,
along with any or all of the respective rights and obligations without the prior
written consent of the other party and any such attempted assignment shall be
void; provided however, that, upon written notice to Licensor, Customer may
assign this Agreement and/or any Schedules hereunder, along with any or all of
the respective rights and/or obligations to its parent company or to one of its
subsidiaries or affiliated companies, without the consent of Licensor.
ARTICLE 16 - GOVERNING LAW
--------------------------
16.1 The validity of this Agreement, the construction and enforcement of its
terms, and the interpretation of the rights and duties of the parties shall be
governed by the laws of the State of New York. The parties hereto agree that the
state and federal courts of New York shall be the proper forums for any legal
controversy arising in connection with this Agreement, and the parties hereby
irrevocably and unconditionally consent to the exclusive jurisdiction of such
courts for such purpose. So far as is permitted under applicable law, this
consent to personal jurisdiction shall
17
<PAGE>
be self operative and no further instrument or action, other than service of
process as is permitted by New York Law, shall be necessary in order to confer
jurisdiction upon Licensor in any such court. The Convention on International
Sale of Goods shall not apply to this Agreement and is hereby disclaimed.
ARTICLE 17 - MODIFICATION, AMENDMENT, SUPPLEMENT AND WAIVER
-----------------------------------------------------------
17.1 No modification, amendment, supplement to or waiver of this Agreement or
any of its provisions shall be binding upon the parties hereto unless made in
writing and duly signed by both parties.
17.2 A failure or delay of either party to this Agreement to enforce at any
time any of the provisions of this Agreement, or to exercise any option which is
herein provided, or to require at any time performance of any of the provisions
hereof, shall in no way be construed to be a waiver of such provision of this
Agreement.
ARTICLE 18 - SEVERABILITY
-------------------------
18.1 In the event any one or more of the provisions of this Agreement shall
for any reason be held to be invalid, illegal or unenforceable, the remaining
provisions of this Agreement shall be unimpaired, and the invalid, illegal or
unenforceable provision shall be replaced by a mutually acceptable provision,
which being valid, legal and enforceable, comes closest to the intention of the
parties underlying the invalid, illegal or unenforceable provision.
ARTICLE 19 - EXHIBITS AND ATTACHMENTS
-------------------------------------
19.1 The terms and conditions of any and all Attachments, Exhibits and other
attachments to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as if fully set forth herein.
ARTICLE 20 - HEADINGS
---------------------
20.1 The headings in this Agreement are for purposes of reference only and
shall not in any way limit or affect the meaning or interpretation of any of the
terms hereof.
ARTICLE 21 - EXPORT OF LICENSED PRODUCTS
----------------------------------------
21.1 The parties hereby agree that this Agreement shall be subject to any
laws, regulations, order or restrictions on the export of the Licensed Products,
or information about the Licensed Products, which may be imposed at any time or
from time to time by the U.S. Government. Both parties (i) shall comply with all
such laws, regulations, permits, orders and other restrictions to the extent
that they are
18
<PAGE>
applicable to Licensed Products and (ii) shall not, directly or indirectly,
export or reexport the Licensed Products or any information about the Licensed
Products to any country for which the U.S. Government, or any agency thereof,
requires an export license or other governmental approval without first
obtaining the same. With respect to all Licensed Products shipped outside of the
United States pursuant to this Agreement, except as otherwise provided on a
Schedule, Licensor shall act as the exporter of record for purposes of the
Export Administration Act of 1979, as amended, and all other relevant laws or
regulations and shall be responsible for obtaining all necessary validated
export licenses and permits necessary to ship the Licensed Products to
Installation Sites outside of the United States. Notwithstanding the foregoing,
Licensor agrees to advise Customer of any import/export restrictions imposed by
any governmental authority upon any of Licensor's products licensed by Customer.
ARTICLE 22 - FOREIGN CORRUPT PRACTICES ACT
------------------------------------------
22.1 Licensor further represents and warrants that it is aware of and
familiar with the provisions of the Foreign Corrupt Practices Act of 1977, as
amended by the Omnibus Trade and Competitiveness Act of 1988 ("FCPA"), and its
purposes and will take no action and make no payment in violation of, or which
might cause Licensor or Customer to be in violation of, the FCPA. Licensor
further represents and warrants that no person employed by it in connection with
the performance of its obligations under this Agreement is an official of the
government of any foreign country, or of any agency thereof, and that no part of
any moneys or consideration paid hereunder shall accrue for the benefit of any
such official. Notwithstanding anything to the contrary, if Licensor takes any
action that could constitute a violation of the FCPA, Customer may, at its sole
option, immediately terminate this Agreement and/or any Schedule issued
hereunder. Furthermore, for purposes of reasonably ensuring compliance with the
FCPA, Licensor agrees that, upon request by Customer at any time during the term
of this Agreement, Licensor will make available for audit by an accounting firm
designated by Customer which is reasonably acceptable to Licensor, Licensor's
books, records and other documentation relevant to its business activities
conducted pursuant to this Agreement. The accounting firm shall provide to
Customer only such information obtained from such review that relates to a
possible violation of the FCPA. Customer shall pay any and all costs of any such
requested audit.
ARTICLE 23 - ENTIRE AGREEMENT
-----------------------------
23.1 This Agreement, together with all the Attachments, Exhibits and other
attachments hereto, constitutes the entire Agreement between the parties and
supersedes all previous agreements, promises, proposals, representations,
understanding and negotiations, whether written or oral, between the parties
respecting the subject matter hereof.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each acting under due and
proper authority, have executed this Agreement as of the day, month and year
first above written.
PERITUS SOFTWARE SERVICES, INC. MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: /s/ Dominic Chan By: /s/ Thomas Vesely
---------------------------- --------------------------
Name: Dominic Chan Name: Thomas Vesely
--------------------------
(type or print)
Title: President & CEO Title: Vice President
-------------------------
Date: 1/26/96 Date: 12/5/96
-------------------------- ------------------------
20
<PAGE>
EXHIBIT 1
---------
SCHEDULE NO. ( )
----------------
This Schedule, dated as of ___________, 19__, is issued pursuant to, and
incorporates herein, the Master License Agreement dated as of October 21, 1996
("Agreement"), by and between Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Customer") and Peritus Software Services, Inc. (" Licensor"). Any term not
otherwise defined herein shall have the meaning ascribed to it in the Agreement.
DESCRIPTION OF
- --------------
LICENSED PRODUCTS: Type of License:
- ------------------ ----------------
Installation Site: Scheduled Delivery Date:
- ------------------ ------------------------
Deliver To:
-----------
Invoice To:
-----------
License Fee: $ Annual Maintenance Fee: $
- ------------ --------- ----------------------- ---------
Documentation: Two (2) copies of installation, user and technical documentation
- -------------
in __________________ language for each license of the Licensed Products.
IN WITNESS WHEREOF, the parties hereto, each acting with proper authority, have
executed this Schedule No.__ as of the day, month and year first written below.
PERITUS SOFTWARE SERVICES, INC. MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: By:
---------------------------------------- --------------------------
Name: Name:
-------------------------------------- ------------------------
(type or print) (type or print)
Title: Title:
------------------------------------- -----------------------
Date: Date:
-------------------------------------- ------------------------
21
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT 2
---------
Discount Schedule
1.) All license fees payable under this Agreement shall be ********************
**********************.
2.) All additional training, orientation and other support services requested by
Customer which are not included as part of the license or maintenance fees shall
be ********************************.
22
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
SCHEDULE NO. 1
--------------
This Schedule, dated as of October 21, 1996, is issued pursuant to, and
incorporates herein, the Master License Agreement dated as of October 21, 1996
("Agreement"), by and between Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Customer") and Peritus Software Services, Inc. ("Licensor"). Any term not
otherwise defined herein shall have the meaning ascribed to it in the Agreement.
DESCRIPTION OF LICENSED PRODUCTS:
- ---------------------------------
Peritus Year 2000 Software, consisting of the following components:
. Peritus COBOL Front-End
. Peritus AutoEnhancer/2000
. Peritus Year 2000 Mass Change Processes and Methodologies for the
software known as AutoEnhancer/2000
Type of License: Enterprise
- ----------------
Installation Site: Scheduled Delivery Date:
- ------------------ ------------------------
RS/6000 running AIX with PC October 21, 1996
workstations running Windows 95,
located at Licensor's site in Boston, MA.
Deliver To: Invoice To:
- ----------- -----------
N/A Merrill Lynch, Pierce, Fenner &
Smith Incorporated
570 Washington Street
New York, NY 10080
Attn: Susan Leuchinger
License Fee: *******, to be credited against the perpetual License Fee set forth
- ------------
in Section 2 hereof in the event Customer exercises the License Conversion
Option described therein.
Annual Maintenance Fee: ***
- -----------------------
Specifications: See Attachment 1 attached hereto and made a part hereof
- ---------------
S1-1
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Special Terms and Conditions
----------------------------
1. Acceptance Testing:
-------------------
In conjunction with the license for access to and use of the Licensed Products
granted to Customer pursuant to this Schedule, Licensor will utilize the
Licensed Products to perform a Year 2000 renovation of Customer's Asset Power
Program in order to (1) demonstrate the utility and accuracy of Licensor's
automatic renovation process and tools, (2) provide Customer with production
ready, Year 2000 renovated software, and (3) provide Customer sufficient
information to evaluate Licensor's process and tools for Year 2000 renovation of
Customer applications ("Acceptance Test"). The Acceptance Test will be performed
in accordance with the Acceptance Test Plan set forth on Attachment A hereto and
the renovated program will be provided to Customer no later than December 2,
1996. Upon receipt of the renovated program ("Renovated Program"), Customer
shall have
********************************************************************************
**************************************************** and determine whether to
exercise its option to acquire a perpetual license to use the Licensed Products
for Year 2000 purposes, for internal use only, as set forth in Section 2 below.
2. Customer Options:
-----------------
Customer shall have the following options with respect to the Licensed Products:
A. Customer shall have the right,
***********************************************************************
***** to convert the term license acquired pursuant to this Schedule to
a perpetual license to use the Licensed Products for Year 2000 purposes,
for internal use only ("License Conversion Option"),
************************************************************** for the
License Fee paid pursuant to this Schedule No. 1 ("Converted License
Fee").
If Customer exercises the License Conversion Option: (i) Licensor shall
promptly install the Licensed Products ready for use and in good working
order, upon Customer's request and at Licensor's expense, at up to two
(2) Customer sites on a RS/6000 system running AIX with PC workstations
running Windows 95 (installation at any additional sites shall be at
Customer's expense at Licensor's standard published charges then in
effect for same); and (ii) notwithstanding the provisions of Section
2.4.2 of the Agreement, Customer
S1-2
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
shall pay the Converted License Fee (a) by December 31, 1996 if Licensor
delivers the Renovated Program no later than December 16, 1996, or (b)
within thirty (30) days of receipt of the Renovated Program if Licensor
delivers the Renovated Program after December 16, 1996.
In the event Customer exercises the License Conversion Option, Licensor
shall thereafter provide the following:
. Maintenance Services for the Licensed Products in accordance
with Article 5 of the Agreement commencing upon installation
thereof; provided however, that, notwithstanding the terms of
Section 5.2 of the Agreement, the Annual Maintenance Fee shall
be *********, due and payable as of January 1, 1998 (thereafter,
the Annual Maintenance Fee will be subject to the provisions of
Section 5.2.1 of the Agreement). As part of Maintenance
Services, Licensor shall troubleshoot, diagnose, and resolve any
problems encountered by Customer in using the Licensed Products
in conjunction with required third party software, such as
MicroFocus Revolve.
. in accordance with Section 4.2 of the Agreement, the services of
the following classifications of Licensor personnel, to provide
training to the following number of Customer personnel in the
use of the Licensed Products as described in Attachment B hereto
*********************:
Renovation Engineer I ************************
Renovation Engineer II, III ************************
Technical Consultant ************************
Factory Manager ************************
Additional training for classes on site at Licensor's facilities
will be made available at an additional charge of
*********************************. For additional training for
classes offered on Customer's site, the charge will be
******************************, plus reasonable out-of- pocket
expenses approved by Customer in advance.
. the following full-time resources at Customer's site(s) as
specified by Customer, for a six (6) month period commencing
January 1, 1997, **********************
. ******* Renovation Engineers on Customer's site(s)
. ***************** Development Engineer at Licensor's
site
S1-3
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
. such consulting resources as may be requested by Customer, at
the rates set forth in the Rate Table annexed hereto as
Attachment C and in accordance with mutually agreed-to terms and
conditions.
B. If Customer exercises the License Conversion Option, Customer shall also
have the right to license additional front-ends for other languages as
may be developed by Licensor, such as Assembler, RPG, and PL/I, for an
additional license fee of **************. Licensor agrees to give
Customer prompt notice of the completion of any such development.
Customer will have a period of
***********************************************************************.
Each additional front-end that Customer opts to license will be subject
to acceptance testing in accordance with the provisions of Article 2 of
the Agreement. For purposes of the Agreement, any such additional front-
end accepted by Customer shall be considered a part of the "Licensed
Product" for all purposes thereunder.
C. If Customer exercises the License Conversion Option and Licensor
subsequently further develops the Licensed Products such that they may
be used for generalized maintenance purposes, Customer shall have the
right to license the generalized version of the Licensed Products for an
additional one-time License Fee of **********. Licensor agrees to give
Customer prompt notice of the completion of development of any such
generalized version of the Licensed Products, and Customer will have a
period of *************************************************************
***********.
Customer's exercise of any of the foregoing options shall be pursuant to a
Schedule to the Agreement to be executed by the parties.
3. The following Sections of the Agreement are hereby modified as follows
solely for purposes of this Schedule and any Schedule issued pursuant to
Customer's exercise of its License Conversion Option:
. Section 1.4 is modified to read as follows: "Customer shall be entitled
to keep copies of the Licensed Products off Customer's premises for
purposes of safekeeping, without payment of an additional license fee
therefor. Customer may at any time: (a) upon written notice to Vendor
and at no charge, transfer any license to use the Licensed Products to
any other Customer site and/or computer, and/or (b) with Licensor's
consent, which consent shall not be unreasonably withheld, and at no
charge, transfer any license to use the Licensed Products to a computer
belonging to a third party (including without limitation, third party
S1-4
<PAGE>
service bureau vendors who may process Customer's business) with whom
Customer has contracted to obtain service if said party agrees in
writing to comply with the terms of this Agreement and restrict the use
of the Licensed Products to Customer. Customer may: (a) at no charge and
without notice, (i) use any Licensed Product at any other location on a
temporary basis for the purposes of program testing and emergency
backup, and/or (ii) provide remote access to the Licensed Products
installed at Customer's site to a third party with whom Customer has
contracted to obtain service; and/or (b) at no charge and with
Licensor's consent, which consent shall not be unreasonably withheld,
provide the Licensed Products to a third party who has been retained by
Customer to load the Licensed Products onto Customer's computing
equipment at Customer's site or such third party's site if said party
agrees in writing to comply with the terms of the Agreement and restrict
the use of the Licensed Products to Customer's computing equipment."
. Section 1.6 is modified by adding the following phrase after each
instance of the phrase "Licensed Products": "and all related material
which is marked confidential".
. Sections 1.7 and 1.8 are deleted.
. Section 3.1 is modified by replacing the last sentence thereof with the
following: "The parties agree to negotiate in good faith mutually
acceptable terms and conditions to govern the escrow of the Source Code
for the Licensed Products and to enter into an agreement setting forth
such mutually acceptable terms and conditions by no later than December
15, 1996."
. Section 15.2 is modified by adding the following to the end thereof:
"and provided further that, upon written notice to Customer, Licensor
may assign this Agreement and/or any Schedules hereunder, along with any
or all of the respective rights and/or obligations, to any entity with
which Licensor may merge or which may acquire Licensor, other than a
competitor of Customer, without the consent of Customer."
4. The following shall apply solely to any Schedule issued pursuant to
Customer's exercise of its License Conversion Option:
. For purposes of Section 4.2, there will be two (2) Installation Sites,
to be designated by Customer.
. Section 5.1.5 shall be modified as follows:
"Licensor shall correct any malfunction, defect or nonconformity
in each Licensed Product provided hereunder following telephonic
notification
S1-5
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
by Customer to Licensor of any such malfunction, defect or nonconformity
which prevents the Licensed Product from performing in accordance with
the Acceptance Test Criteria, the documentation provided hereunder and
such other warranties, descriptions and specifications as may be set
forth herein or in a Schedule. Licensor agrees to respond by telephone
to any such request made during the hours of 8am to 5pm EST/EDT, Monday
through Friday, *******************, and to any question or request for
an enhancement **************************. If in the determination of
Customer, any malfunction, defect or nonconformity which interrupts or
materially affects Customer's use of the Licensed Products cannot be
satisfactorily corrected through such telephone communication, Licensor
agrees to respond
************************************************************************
************************************************* of Customer's initial
request. If such problem is the result of Customer misuse of Licensed
Product or unrelated to Licensed Product, Customer shall reimburse
Licensor at Licensor's then current published standard rates for such
services.
IN WITNESS WHEREOF, the parties hereto, each acting with proper authority, have
executed
PERITUS SOFTWARE MERRILL LYNCH, PIERCE, FENNER
SERVICES, INC. & SMITH INCORPORATED
By: /s/ Dominic Chan By: /s/ Thomas Vesely
---------------------------- --------------------------
Name: Dominic Chan Name: Thomas Vesely
-------------------------- ------------------------
Title: President & CEO Title: Vice President
------------------------- -----------------------
Date: 11/26/96 Date: 12/5/96
-------------------------- ------------------------
S1-6
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ATTACHMENT 1 TO SCHEDULE NO. 1
------------------------------
SPECIFICATIONS FOR LICENSED PRODUCTS
------------------------------------
The following specifications for the Licensed Products are incorporated herein
by reference and made a part hereof:
PERITUS COBOL FRONT-END:
- ------------------------
****************************************************************************
*****************.
The following dialects are supported:
****************
************************************************
****************
****************
PERITUS AUTOENHANCER/2000:
- --------------------------
a) **********************************************************
b) **********************************************************
****************************************************************
****************************************************************
****************************************************************
****************************************************************
c) **********************************************************
****************************************************************
**********
. ******************
. ******************
. ******************
. ******************
d) **********************************************************
S1-7
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
e) **********************************************************
****************************************************************
**********
. *********************
. *********************
. *********************
f) **********************************************************
g) **********************************************************
h) **********************************************************
****************************************
i) **********************************************************
****************************************************************
**********
j) **********************************************************
****************************************************************
**********
k) **********************************************************
****************************************************************
**********
l) **********************************************************
**********
. ***********************
. ***********************
. ***********************
. ***********************
. ***********************
. ***********************
. ***********************
. ***********************
. ***********************
. ***********************
. ***********************
S1-8
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
. ***********************
. ***********************
. ***********************
Peritus Year 2000 Mass Change Processes and Methodologies for the tool
----------------------------------------------------------------------
known as Automate 2000.
- ----------------------
This includes the following documentation and flow charts:
. ****************************************
. ****************************************
. ****************************************
. ****************************************
. ****************************************
. ****************************************
. ****************************************
. ****************************************
. ****************************************
S1-9
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
SCHEDULE NO. 2
--------------
This Schedule, dated as of December 16, 1996, is issued pursuant to, and
incorporates herein, the Master License Agreement dated as of October 21, 1996
("Agreement"), by and between Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Customer") and Peritus Software Services, Inc. ("Licensor"). Any term not
otherwise defined herein shall have the meaning ascribed to it in the Agreement.
DESCRIPTION OF LICENSED PRODUCTS:
- ---------------------------------
Peritus Year 2000 Software, consisting of the following components:
. Peritus COBOL Front-End
. Peritus AutoEnhancer/2000
. Peritus Year 2000 Mass Change Processes and Methodologies for the software
known as AutoEnhancer/2000
Type of License: Scheduled Delivery Date:
- ---------------- ------------------------
Enterprise See Section 2 below
Installation Site: Deliver/Invoice To:
- ------------------ -------------------
See Section 2 below Merrill Lynch, Pierce, Fenner
& Smith Incorporated
570 Washington Street
New York, NY 10080
Attn: Susan Leuchinger
License Fee: ********** minus a credit of ********** for License Fees paid
pursuant to Schedule No. 1 to the Agreement
Annual Maintenance Fee: See Section 4 below
- ----------------------
Specifications: See Attachment 1 attached hereto and made a part hereof
- --------------
S2-1
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Special Terms and Conditions
----------------------------
1. For purposes of this Schedule only, the Licensed Products shall be deemed
to have been accepted by Customer in accordance with Article 2 of the Agreement
as of the date first set forth above.
2. Licensor shall promptly install the Licensed Products ready for use and in
good working order, upon Customer's request and at Licensor's expense, at up to
two (2) Customer sites on a RS/6000 system running AIX with PC workstations
running Windows 95 (installation at any additional sites shall be at Customer's
expense at Licensor's standard published charges then in effect for same).
3. Notwithstanding the provisions of Section 2.4.2 of the Agreement, Customer
shall pay the License Fee by December 31, 1996.
4. Licensor shall provide Customer with the following:
. Maintenance Services for the Licensed Products in accordance with
Article 5 of the Agreement, commencing upon installation thereof;
provided however, that, notwithstanding the terms of Section 5.2 of the
Agreement, the Annual Maintenance Fee shall be ********** due and
payable as of January 1, 1998 (thereafter, the Annual Maintenance Fee
will be subject to the provisions of Section 5.2.1 of the Agreement). As
part of Maintenance Services, Licensor shall troubleshoot, diagnose, and
resolve any problems encountered by Customer in using the Licensed
Products in conjunction with required third party software, such as
MicroFocus Revolve.
. in accordance with Section 4.2 of the Agreement, the services of the
follow ing classifications of Licensor personnel, to provide training to
the follow ing number of Customer personnel in the use of the Licensed
Products as described in Attachment A hereto at no additional charge:
Renovation Engineer I ********************
Renovation Engineer II, III **********************
Technical Consultant ******************
Factory Manager ******************
Additional training for classes on site at Licensor's facilities will be
made available at an additional charge of ********************. For
additional
S2-2
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
training for classes offered on Customer's site, the charge will be
********** per instructor day, plus reasonable out-of- pocket expenses
approved by Customer in advance.
. the following full-time resources at Customer's site(s) as specified by
Customer, for a six (6) month period commencing January 1, 1997, at
**********
. ********** Renovation Engineers on Customer's site(s)
. ********** Development Engineer at Licensor's site
. such consulting resources as may be requested by Customer, at the rates
set forth in the Rate Table annexed hereto as Attachment B and in
accordance with mutually agreed-to terms and conditions.
5. Customer shall also have the right to license additional front-ends for
other languages as may be developed by Licensor, such as Assembler, RPG, and
PL/I, for an additional license fee of ********** each. Licensor agrees to give
Customer prompt notice of the completion of any such development. Customer will
have a period of one year from the date that it receives said notice from
Licensor to exercise this option. Each additional front-end that Customer opts
to license will be subject to acceptance testing in accordance with the
provisions of Article 2 of the Agreement. For purposes of the Agreement, any
such additional front-end accepted by Customer shall be considered a part of the
"Licensed Product" for all purposes thereunder.
6. If Licensor subsequently further develops the Licensed Products such that
they may be used for generalized maintenance purposes, Customer shall have the
right to license the generalized version of the Licensed Products for an
additional one-time License Fee of **********. Licensor agrees to give Customer
prompt notice of the completion of development of any such generalized version
of the Licensed Products, and Customer will have a period of one year from the
date it receives said notice to exercise this option.
7. The following Sections of the Agreement are hereby modified as follows
solely for purposes of this Schedule:
. Section 1.4 is modified to read as follows: "Customer shall be
entitled to keep copies of the Licensed Products off Customer's
premises for purposes of safekeeping, without payment of an additional
license fee therefor. Customer may at any time: (a) upon written
notice to Vendor and at no charge, transfer
S2-3
<PAGE>
any license to use the Licensed Products to any other Customer site
and/or computer, and/or (b) with Licensor's consent, which consent
shall not be unreasonably withheld, and at no charge, transfer any
license to use the Licensed Products to a computer belonging to a
third party (including without limitation, third party service bureau
vendors who may process Customer's business) with whom Customer has
contracted to obtain service if said party agrees in writing to comply
with the terms of this Agreement and restrict the use of the Licensed
Products to Customer. Customer may: (a) at no charge and without
notice, (i) use any Licensed Product at any other location on a
temporary basis for the purposes of program testing and emergency
backup, and/or (ii) provide remote access to the Licensed Products
installed at Customer's site to a third party with whom Customer has
contracted to obtain service; and/or (b) at no charge and with
Licensor's consent, which consent shall not be unreasonably withheld,
provide the Licensed Products to a third party who has been retained
by Customer to load the Licensed Products onto Customer's computing
equipment at Customer's site or such third party's site if said party
agrees in writing to comply with the terms of the Agreement and
restrict the use of the Licensed Products to Customer's computing
equipment."
. Section 1.6 is modified by adding the following phrase after each
instance of the phrase "Licensed Products": "and all related material
which is marked confidential".
. Sections 1.7 and 1.8 are deleted.
. Section 3.1 is modified by replacing the last sentence thereof with
the following: "The parties agree to negotiate in good faith mutually
acceptable terms and conditions to govern the escrow of the Source
Code for the Licensed Products and to enter into an agreement setting
forth such mutu ally acceptable terms and conditions by no later than
March 1, 1997."
. For purposes of Section 4.2, there will be two (2) Installation Sites,
to be designated by Customer.
. Section 5.1.5 shall be modified to read as follows: "Licensor shall
correct any malfunction, defect or nonconformity in each Licensed
Product provided hereunder following telephonic notification by
Customer to Licensor of any such malfunction, defect or nonconformity
which prevents the Licensed Product from performing in accordance with
the Acceptance Test Criteria, the documentation provided hereunder and
such other warranties, descriptions and specifications as may be set
forth herein or in a Schedule. Licensor agrees to respond by telephone
to any such request made during the hours of 8am to 5pm EST/EDT,
Monday through Friday,
S2-4
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
within ******* and to any question or request for an enhancement
within ******* business day. If in the determination of Customer, any
malfunction, defect or nonconformity which interrupts or materially
affects Customer's use of the Licensed Products cannot be
satisfactorily corrected through such telephone communication,
Licensor agrees to respond by having at least ************* trained in
the Licensed Products at the Installation Site within *********** of
Customer's initial request. If such problem is the result of Customer
misuse of Licensed Product or unrelated to Licensed Product, Customer
shall reimburse Licensor at Licensor's then current published standard
rates for such services."
. Section 15.2 is modified by adding the following to the end thereof:
"and provided further that, upon written notice to Customer, Licensor
may assign this Agreement and/or any Schedules hereunder, along with
any or all of the respective rights and/or obligations, to any entity
with which Licensor may merge or which may acquire Licensor, other
than a competitor of Customer, without the consent of Customer."
IN WITNESS WHEREOF, the parties hereto, each acting with proper authority, have
executed this Schedule No. 2 as of the day, month, and year first above written.
PERITUS SOFTWARE MERRILL LYNCH, PIERCE, FENNER
SERVICES, INC. & SMITH INCORPORATED
By: /s/Allen Deary By: /s/Thomas Vesely
-------------------------------- ---------------------------------
Name: Allen Deary Name: Thomas Vesely
------------------------------ -------------------------------
Title: Vice President - Finance Title: Vice President
----------------------------- -------------------------
Date: 11/12/96 Date: 12/16/96
------------------------------ -------------------------------
S2-5
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ATTACHMENT 1 TO SCHEDULE NO. 1
------------------------------
SPECIFICATIONS FOR LICENSED PRODUCTS
------------------------------------
The following specifications for the Licensed Products are incorporated herein
by reference and made a part hereof:
PERITUS COBOL FRONT-END:
- -----------------------
Cob2pil/Cob2sym translates into Peritus Intermediate Language the most commonly
utilized COBOL statements.
The following dialects are supported:
**********
********************
**********
**********
PERITUS AUTOENHANCER/2000:
- -------------------------
a) ********************
b) ************************************************************
******************************************************************
******************************************************************
******************************************************************
**********************************.
c) ************************************************************
******************************************************************
******************************************************************
. *********************
. *********************
. *********************
. *********************
d) *****************************************************
e) ************************************************************
******************************************************************
******************************************************************
S2-6
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
. *********************
. *********************
. *********************
f) **********************************************************
g) **********************************************************
h) **********************************************************
i) **********************************************************
************************************************************
j) ************************************************************
******************************************************************
******************************************************************
k) ************************************************************
******************************************************************
******************************************************************
l) ************************************************************
******************************************************************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
. *********************
S2-7
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Peritus Year 2000 Mass Change Processes and Methodologies for the tool known as
- -------------------------------------------------------------------------------
Automate 2000.
- -------------
This includes the following documentation and flow charts:
. **************************************
. **************************************
. **************************************
. **************************************
. **************************************
. **************************************
. **************************************
. **************************************
. **************************************
. **************************************
S2-8
<PAGE>
EXHIBIT 10.26
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ENGINEERING CONSULTANT SERVICES AGREEMENT
between
STRATUS COMPUTER, INC.
and
PERITUS SOFTWARE SERVICES, INC.
This Agreement is made this 30 day of November, 1993, between Stratus Computer,
Inc., 55 Fairbanks Boulevard, Marlboro, Massachusetts 01752 ("Stratus") and
Peritus Software Services, Inc., 164 Middlesex Turnpike, Burlington, MA 01803
("Peritus").
1. Stratus hereby engages Peritus and Peritus hereby agrees to perform the
software engineering services for Stratus as set forth in Appendix A
hereto (the "Work") for the price set forth in Appendix A. The dates
and/or events causing payments to become due and payable and the
conditions which define the starting date of Peritus' performance are
also set forth in Appendix A.
2. TERM OF AGREEMENT
This Agreement shall continue in force for a three (3) year period from
the date set forth above unless earlier terminated in accordance with
Section 8.
3. TRADE SECRETS
A. During the term of this Agreement, Stratus may disclose to Peritus,
or Peritus may obtain access to, develop or create proprietary and
confidential information or material concerning or related to
Stratus' manufacturing processes, services, products or general
business operations. Such Information or material may include, but
is not limited to, computer programs, design documentation,
development, test and maintenance tools, programs and procedures,
test data, or Stratus' sales, costs, profits, pricing methods,
organization, employee lists, service, software diagnostic
techniques, customer lists, processes, user access passwords, etc.
Peritus acknowledges the confidential and secret character of the
Information, and agrees that the Information is the sole, exclusive
and extremely valuable property of Stratus. Accordingly, without
Stratus' prior written consent, Peritus agrees not to use the
Information for any purpose except in the performance of this
1
<PAGE>
Agreement as expressly permitted herein, and not to divulge all or
any part of the Information to any third party, either during or
after the term of this Agreement without Stratus' prior written
consent in each instance.
B. Except as expressly provided in this Agreement or authorized by
Stratus in writing, all Information shall remain in the possession
and control of Peritus at its offices as first noted above.
4. INVENTIONS, DISCOVERIES AND DEVELOPMENTS
A. Rights in the Work: Stratus shall have all right, title and
interest, including all copyright, trade secret and patent rights
in the Work and in all inventions, discoveries, developments and
improvements, made or conceived by Peritus under or arising out of
this Agreement, including all physical copies and all ideas,
techniques, concepts and expressions thereof contained in the Work.
Notwithstanding the foregoing, nothing in this Agreement shall
preclude Peritus from using its general knowledge, experience and
skill in connection with any other work, products or services for
itself or for any other person or entity.
B. Assignment and Assistance: Peritus hereby transfers and assigns all
of his/her rights in and to the Work to Stratus. During and after
the term of this Agreement Peritus shall, at Stratus' request and
expense, make application of letters Patent in the United States
and/or other countries, will assign such applications to Stratus
and will assist and cooperate with Stratus in the prosecution of
such applications. Peritus hereby assigns to Stratus all copyrights
in and to the Work.
5. RETURN OF PROPERTY
Upon expiration or earlier termination of this Agreement, Peritus
agrees to stop using and to immediately return to Stratus all
Information, material, documents, equipment, tools or facilities
furnished by Stratus pursuant to the provisions or requirements of this
Agreement. Peritus shall be fully responsible for the care and
protection of the same until such delivery.
6. WARRANTY
Peritus warrants that it has or will have good and marketable title to
all of the Work provided herewith. Peritus shall indemnify, defend and
hold harmless Stratus and its customers from any liability, damage or
expense (including
2
<PAGE>
reasonable attorney's fee) resulting from or arising in any way out of
any claims by any third parties, which are based upon or are the result
of any breach of the warrants contained in this Section. Peritus has
the right to be notified promptly of any claim, demand or suit brought
against Stratus and Peritus has the right to defend such suit with
counsel of its choice.
7. HARMLESS/WAIVER
Peritus and Stratus shall indemnify and hold harmless the other party
("Indemnified Party") against all claims, losses and expenses
(including reasonable attorney's fees) and injuries to person or
property (including the Indemnified Party's property) resulting from
any act on the part of (indemnifying party), its agents, employees or
subcontractors pursuant to (indemnifying party's) performance under
this Agreement, except to the extent any such loss is due directly to
the negligence of the Indemnified Party.
8. TERMINATION:
A. For Cause: Stratus may terminate this Agreement without further
payment to Peritus if:
1. Peritus fails to perform any material provisions of this
Agreement, and fails to cure within thirty (30) days after
receipt of notice.
2. Peritus declares bankruptcy or makes an assignment for the
benefit of creditors, or a receiver of similar officer is
appointed to take charge of all or part Peritus' assets.
3. Peritus assigns this Agreement, or any obligation or right
under it (the word "assign" to include without limitation, a
transfer of major interest in Peritus), or merges with a third
party, not a parent or subsidiary company, without Stratus'
prior written consent which Stratus shall not unreasonably
withhold.
B. For Convenience: Stratus may terminate this Agreement for
convenience at any time after the first year upon giving Peritus
not less than one hundred eighty (180) days' prior written notice.
Upon the effective date of termination Peritus will:
1. Immediately stop work unless otherwise directed by Stratus in
writing.
2. Notify Stratus of costs incurred up to the date of termination.
3
<PAGE>
Stratus shall pay those costs within thirty (30) days of
receipt of a proper invoice. Such costs shall not exceed, and
Stratus will not be obligated to pay more than the unpaid
balance due for Work performed prior to the termination date
based upon the fees and payments described in Appendix A.
Payment upon termination will be accepted by Peritus in full
satisfaction of all claims and demands against Stratus based
upon or arising out of or in connection with the Agreement.
3. Notwithstanding any termination, the obligations of Peritus
under paragraphs 3, 4 and 5 above shall survive expiration.
9. NOTICE
Any notice given under this Agreement shall be written or telegraphic.
Written notice shall be sent by registered or certified mail, postage
prepaid, return receipt requested. Any telegraphic notice must be
followed within three (3) days by written notice. All notices shall be
effective when first received at the following addresses:
STRATUS COMPUTER, INC.
55 Fairbanks Blvd.
Marlboro, MA 01752
Attn: James Filreis
PERITUS SOFTWARE SERVICES INC.
164 Middlesex Turnpike
Burlington, MA 01803
Attn: Peter McElroy
10. COMPLIANCE WITH APPLICABLE LAWS
Peritus warrants that the Work performed under this Agreement complies
with or will comply with all applicable United States laws and
regulation Peritus' failure to comply with the above may result in a
material breach of this Agreement.
11. INDEPENDENT CONTRACTOR
In furnishing services pursuant to the Agreement, Peritus will be acting
as an Independent Contractor. Peritus is not an agent or employee of
Stratus and is not authorized to act on behalf of Stratus. As such,
neither Peritus nor his/her employees, agents or contractors will be an
employee of Stratus and will not by reason of the Agreement or his/her
services hereunder be entitled to
4
<PAGE>
participate in, or to receive any benefit or right under, any of
Stratus' employee benefit or welfare plans.
12. GENERAL
A. This Agreement constitutes and fully expresses the entire and only
Agreement between the parties with respect to the subject matter
hereof. This Agreement supersedes all prior agreements and
understandings between the parties and may not be modified, waived
or extended unless mutually agreed upon in writing by both
parties.
B. In the event any provision of this Agreement is found to be
legally unenforceable, such unenforceability shall not prevent
enforcement of any other provision of the Agreement.
C. This Agreement shall be construed, interpreted and applied in
accordance with the Laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this 30th
day of November, 1993.
STRATUS COMPUTER, INC. PERITUS SOFTWARE SERVICES, INC.
BY: /s/James Filres BY: /s/Peter McElroy
------------------------------ ------------------------------------
NAME: James Filres NAME: Peter McElroy
---------------------------- ----------------------------------
TITLE: TITLE:
--------------------------- ---------------------------------
5
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
APPENDIX A
to
ENGINEERING CONSULTANT SERVICES AGREEMENT
1. STATEMENT OF WORK
1.1 Out Source Products
A. Peritus will use all technically feasible means to
diagnose and repair or resolve software defects which
occur in the following Stratus VOS-based software
programs ("Out Sourced Products") and which are
reported to Peritus during the term of the Agreement
. *****************************
. *****************************
. *****************************
. *****************************
. *****************************
. *****************************
**************************************
*****
*****
*****
**********
**********
***************
*****
*****
*****
Stratus shall have the right to add or delete
products from the above list subject to **********
days' advance written notice. The parties shall
adjust (increase or decrease) the annual fee, on a
pro rata basis, to reflect the change in the list of
Out Source Products, based on the product's defect
history and using the rate of
*********************************************.
6
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
B. For each ********************************************
***************************************************
***************************************************
***************************************************
***************************************************
***************************************************
***************************************************
***************************************************
***************************
C. For each *****************************************
***************************************************
***************************************************
***************************
D. Peritus will ***************************************
***************************************************
***************************************************
***************************************************
***************************
E. Peritus will ***************************************
***************************************************
***************************************************
***************************
F. Peritus will ***************************************
***************************
<TABLE>
<CAPTION>
Priority Definition Response Time
-------- ---------- -------------
<S> <C> <C>
******** ********** ***************
******** ********** ***************
******** ********** ***************
******** ********** ***************
******** ********** ***************
******** ********** ***************
******** ********** ***************
******** ********** ***************
******** ********** ***************
</TABLE>
7
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
1.2 Unresolved Defects List:
Peritus will ************************************************
************************** currently included in the Stratus
UNR (Unresolved Defect) list or which are added to the UNR
list during the term of this agreement or other difficult
software defects which Stratus assigns to Peritus. Such
maintenance shall be for the affected Stratus releases of each
applicable Software program. Assignment of UNR defects to
Peritus shall be through mutual agreement.
1.3 Field Support/Enhancements
A. If requested and approved by an authorized
representative of Stratus, Peritus will dispatch
software engineers to a customer location for
diagnosis and/or resolution of a defect or to provide
specialized software support. For such support,
Peritus will charge Stratus a consulting fee (as set
forth in Appendix B hereof) as well as usual and
customary administrative, communication, travel, and
living expenses.
B. At the request of Stratus, Peritus will be available
to make enhancements to the Out Sourced Products.
Peritus will respond to such requests with a proposal
which will provide a description of the enhancement,
schedules, costs, additional expenses (if
applicable), and other requirements. Peritus will
perform the work after written approval has been
received from an authorized representative of
Stratus.
2. STRATUS REQUIREMENTS
2.1 Stratus will make available, at no cost to Peritus, (1) one
complete library of current source code, requirements and
design documentation, user documentation, operations
documentation, and all other relevant documentation and
material which is required for the performance of this
agreement. The source code for the Out Sourced Products must
be consistent with the versions of the Stratus software which
are installed on the Stratus system located at Peritus.
8
<PAGE>
2.2 Stratus will make available, at no cost to Peritus, all test
software, test suites, test tools and test data which are
required to ensure the proper testing and functioning of the
software products maintained as part of this agreement.
2.3 Stratus will provide, at no cost to Peritus, copies of or
access to all required development software systems and tools.
2.4 Stratus will loan, at no cost to Peritus, a minimum VOS-based
computer system which shall allow Peritus to analyze,
assemble, compile, and test most of the resolutions or
corrections being developed by Peritus. This system shall be
installed and maintained by Stratus, at no cost to Peritus, at
Peritus' principal office which currently is located at 164
Middlesex Turnpike, Burlington, MA 01803. The use of the
system shall be subject to the terms and conditions of
Appendix C.
2.5 Stratus will provide, at no cost to Peritus and at Stratus'
facilities, a minimum of (1) one month of training for the
engineering team assigned to this project by Peritus. The
training shall include the Outsourced Products listed in
Section 2.2, VOS, and other system software as necessary. Such
training shall also include Stratus policies, processes and
procedures; the use of CALL and QTS; and use of the
development, maintenance, and test tools used by Stratus. The
training may include formal classroom training, tutorials,
system exposure, hands-on experience, and individual
presentations.
2.6 Stratus will provide to Peritus (l) one copy of all relevant
internal policy, process, and procedure manuals which Peritus
must follow.
2.7 Stratus will provide Peritus with access (read and write) to
the existing problem reporting system, QTS (Quality Tracking
System), and access (read only) to the CALL system.
2.8 From time to time throughout the performance of this
agreement, Stratus will make personnel available to Peritus
for the purpose of consulting with Peritus as required for the
performance of this Agreement. Such consultation shall
include, but not be limited to, topics such as system and
software architecture, software functions and features, and
use of Stratus supplied software and systems.
2.9 Stratus will be responsible for all system and integration
testing, quality assurance, engineering acceptance, and
manufacturing, deployment, and distribution of all software
repaired or developed under this Agreement.
9
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
2.10 When requested by Peritus, Stratus will make available, at no
cost to Peritus, appropriate systems and facilities within the
Stratus test facility. Such use by Peritus of these facilities
will be scheduled in advance and will be at the convenience of
Stratus.
2.11 Stratus will continue to provide Level 1 support for all Out
Sourced Products which Peritus may maintain under this
agreement. Peritus' shall be limited to Level 3 support and
occasional Level 2 support specifically when requested by
Stratus. In particular, the Stratus CAC will be responsible
for all customer interface tasks.
2.12 Peritus shall provide a communications facility to the Stratus
CALL and QTS systems and to the development and test systems
which are located in Marlborough, MA.
3. FEES:
3.1 The fee for the Work described in Section 1.1 Out Sourced
Products is ********* per year for the first three (3) years
of this Agreement and ********* for each extension year.
The above annual fees are based on the repair or resolution of
up to the following number of defects in each annual period
based on the initial list of Outsourced Products ("Base Level
Defects"). These annual fees and the Base Level Defects per
annual period shall be adjusted upward or downward to reflect
the addition or deletion of software programs to or from the
Out Sourced Products list. If Peritus repairs or resolves more
than the Base Level Defects in an annual period, Stratus shall
pay to Peritus the amount of
*********************************** per each such additional
resolved defect. Peritus shall submit quarterly invoices in
advance for ***** of the annual fee. The first invoice shall
be submitted (30) thirty days after execution of this
agreement by the parties. The Base Level Defects for the
initial list of Out Sourced Products is ***** per year for
1994, 1995 and 1996.
3.2 The fee for Work performed according to Section 1.3 shall be
according to the rates shown in Appendix B plus any additional
expenses. Peritus will submit invoices upon completion of the
Work. Included with such invoices will be any documentation
which supports and verifies any additional expenses.
10
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
3.3 The fee for the work described in Section 1.2 is *****for each
of the ***** ***** defects which are resolved by Peritus. The
parties will agree on a per defect fee for the ****** and each
subsequent defect resolved by Peritus based on the parties'
experiences in resolving the ********** defects.
3.4 Provided Peritus has increased its fees generally, Peritus
shall have the right to increase the fees charged Stratus
hereunder upon giving Stratus not less than ninety (90) days'
prior written notice and provided further that any such
increase for a particular fee does not exceed ************* in
any calendar year.
4. MISCELLANEOUS
4.1 Peritus will assign a project manager who will be directly
responsible for the performance of this agreement. At its
option, Peritus may assign a second project manager who shall
be responsible for the work performed in Section 1.2.
4.2 Stratus shall assign a liaison manager to be the principal
contact for Peritus.
4.3 Peritus shall meet with the Stratus liaison manager weekly
during the transition phase, monthly thereafter, and at the
request of either party. The purpose of these meetings is to
report progress, identify issues and problems, develop
solutions to issues and problems, conduct other such business
as is necessary for proper performance, and to ensure Stratus'
satisfaction.
4.4 Peritus will conduct a **********team training session for the
Stratus and Peritus personnel who will work together in the
performance of this agreement. The objective of this session
is to insure that all personnel understand their respective
responsibilities, know the provisions of the agreement, and
that they will work together cooperatively.
5. DEFINITIONS
Defect resolutions as used in this agreement are defined as follows:
a) *********************************************************
11
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
b) *********************************************************
*********************************************************
************************
c) *********************************************************
*********************************************************
*********************************************************
*********************************************************
************************
d) *********************************************************
**********
e) *********************************************************
*********************************************************
************************
f) *********************************************************
************************
g) *********************************************************
h) *********************************************************
************************
g) *********************************************************
6. COMMENCEMENT OF WORK
Peritus will begin performance of the Work required under this
Agreement for the Out Sourced Products and any subsequent product
additions when the items in Section 2.0 of this Appendix are complete.
12
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
APPENDIX B
to
PERITUS ENGINEERING CONSULTANT AGREEMENT
Software Engineering Rates
--------------------------
<TABLE>
<CAPTION>
Systems Senior Software
Consultant Engineer Software Engineer
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ***** ***** *****
Month ***** ***** *****
Week ***** ***** *****
Day ***** ***** *****
</TABLE>
Other Terms and Conditions:
. Full day minimums apply
. Reasonable and usual expenses are in addition to the above rates. These
expenses include travel, meals, lodging, and administration.
. Required travel is billed ******
. Rates are subject to change with ninety (90) days' prior written
notice. Peritus shall
****************************************************
*********************************************** and (b) increase these
rates by more than ************************ in any calendar year.
13
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
APPENDIX C
to
PERITUS SOFTWARE CONSULTANT AGREEMENT
Installation: Peritus Software Services, Inc.
164 Middlesex Turnpike
Burlington, MA 01803
1. System: The System being loaned to Peritus consists of the following
hardware and/or software products:
SYSTEM CONFIGURATION
***** *****
***** *****
***** *****
***** *****
***** *****
***** *****
***** *****
***** *****
***** *****
List Price Value **********
==========
2. LICENSE
A. Stratus hereby grants to Peritus a temporary, nontransferable,
nonexclusive license to use the Software Products and related
materials listed in the Product Schedule during the term of
the Agreement and only for the express purposes of providing
engineering service to Stratus as provided in this Agreement.
14
<PAGE>
The Software Products may be used only with the Processing
Module listed or identified in the System Configuration
Schedule ("Licensed Processor"). The Software Product may only
be copied, in whole or in part (with the proper inclusion of
existing copyright notices), and any other proprietary
notice(s) on such Software Products as may be necessary and
incidental to use on such Licensed Processor, for archival and
back-up purposes or to replace a worn or defective copy.
Except as set forth herein, or as may be permitted in writing
by Stratus, Peritus shall not (i) provide, transmit or
otherwise make available, the Software Product or any part or
copies thereof to any third party, or (ii) reverse engineer,
reverse compile or reverse assemble the Software Product.
3. TITLE
Peritus acknowledges that Stratus shall have sole and
exclusive title to, and ownership of, the Computer System.
Peritus agrees, if reasonably necessary to protect Stratus'
interest, to keep the Computer System labeled so as to
indicate Stratus' ownership thereof and to execute such
further documentation as Stratus may request (including UCC
Financing Statements) to evidence Stratus' title.
4. SHIPPING COSTS AND INSURANCE
A. Stratus agrees to pay all shipping costs for the Computer
System to Peritus' site and from Peritus' site when returned
at the end of the Agreement Term. Stratus shall bear the risk
of loss on the Computer System while in transit and Peritus
shall bear the risk of loss on or damage to the Computer
System during the Agreement Term.
B. Peritus agrees, at its own expense, to obtain and maintain at
all times, with insurers of recognized responsibility,
liability insurance in amounts sufficient to insure against
all risk of loss or damage to the Computer System, said amount
not to be less than the total list price value of the Computer
System. If so requested by Stratus, (a) Peritus shall furnish
valid certificates of insurance evidencing the coverages
detailed above, and (b) Peritus shall negotiate any insurance
claim.
5. INDEMNITY
Peritus agrees to indemnify and hold Stratus harmless from any loss,
claim or damage to persons or property, arising out of Peritus' use or
possession of the Products.
15
<PAGE>
6. ALTERATIONS, MODIFICATIONS, ATTACHMENTS, LOCATION OF USE
Peritus agrees to make no alterations, modifications or attachments to
the Computer System nor move or otherwise relocate the Computer System
without Stratus' written permission.
7. MAINTENANCE
Stratus agrees to maintain the Computer System in good operating
condition during the Term of this Agreement. There shall be no charge
to Peritus for this service, unless any repair or other service is
required as a result of misuse, neglect or abuse of the Computer
System.
16
<PAGE>
AMENDMENT
to
ENGINEERING CONSULTANT SERVICES AGREEMENT
between
STRATUS COMPUTER, INC. and PERITUS SOFTWARE SERVICES, INC.
The Engineering Consultant Services Agreement ("Agreement"), dated November 30,
1993, between Stratus Computer, Inc. and Peritus Software Services, Inc. is
hereby amended as follows:
1. Section 3, A of the Agreement is deleted and replaced with the
following:
3. TRADE SECRETS
A. During the term of this Agreement, Stratus may disclose to
Peritus, or Peritus may obtain access to, develop or create 1)
proprietary and confidential information or material
concerning or related to Stratus' manufacturing processes,
services, products or general business operations or 2)
proprietary and confidential information or material of third
parties which has been entrusted to Stratus. Such Information
or material may include, but is not limited to, computer
programs, design documentation, development, test and
maintenance tools, programs and procedures, test data, or
Stratus' sales, costs, profits, pricing methods, organization,
employee lists, service, software diagnostic techniques,
customer lists, processes, user access passwords, etc. Peritus
acknowledges the confidential and secret character of the
Information, and agrees that the Information is the sole,
exclusive and extremely valuable property of Stratus or of
such third parties. Accordingly, without Stratus' prior
written consent, Peritus agrees not to use the Information for
any purpose except in the performance of this Agreement as
expressly permitted herein, and not to divulge all or any part
of the Information to any third party, either during or after
the term of this Agreement without Stratus' prior written
consent in each instance. Information will not be subject to
this provision if it (i) is or becomes a matter of public
knowledge without the fault of Peritus, (ii) was known to
Peritus prior to the disclosure to it by Stratus, or (iii) is
received by Peritus from a third party under circumstances
permitting it unrestricted disclosure.
2. The last sentence of Section 4A. is replaced by the following:
Stratus agrees and acknowledges that in the performance of the Work by
Peritus hereunder, Peritus shall utilize proprietary methodologies,
systems, processes, inventions, algorithms, procedures, techniques,
work approaches
17
<PAGE>
and general knowledge, skill and experience of Peritus, now or
hereafter acquired or developed. Nothing in this Agreement shall impair
the right of Peritus to utilize any of the foregoing or to make,
prepare, create, procure and/or market products containing or embodying
the foregoing, now or in the future.
3. The following Section 12 D. is added to the Agreement:
Stratus shall have the right, upon reasonable notice to Peritus, to
conduct audits of Peritus' facilities to ascertain that Peritus is
abiding by the provisions of this Agreement (in particular, but without
limitation, Section 3, Trade Secrets). All persons involved in such
audits shall (i) while at the facilities of Peritus, comply with all
reasonable rules and regulations established by Peritus, and (ii)
maintain in confidence and not use (except for the purposes
contemplated by this Agreement) or disclose to any third parties any
proprietary or confidential information of Peritus or its customers
disclosed to them or of which they become aware as a result of any such
audits.
4. The following Section 12 E. is added to the Agreement:
Peritus shall defend and indemnify Stratus against any and all claims,
damages, costs or liability to third parties, howsoever arising, based
on any action or inaction of Peritus, in violation of any of Peritus'
obligations under Section 3 of this Agreement; provided that, with
respect to third party claims, (i) Stratus shall have promptly provided
Peritus written notice thereof and reasonable cooperation, information
and assistance in connection therewith, and (ii) Peritus shall have
sole control and authority with respect to the defense, settlement or
compromise thereof.
5. The following Section 12F. is added to the Agreement:
Peritus shall promptly notify Stratus of any changes in personnel, to
enable Stratus to administer computer access accounts, issue security
badges and otherwise control access to Stratus facilities and computer
systems by current or former Peritus personnel.
In all other respects, the Agreement shall remain in effect, unaltered.
STRATUS COMPUTER INC. PERITUS SOFTWARE SERVICES INC.
/s/ Stephen C. Kiely /s/ Allen K. Deary
- ---------------------------------- ------------------------------------
VP Engineering VP Finance
- ---------------------------------- ------------------------------------
- ---------------------------------- ------------------------------------
18
<PAGE>
PERITUS
Software Services, Inc.
STRATUS COMPUTER, INC.
February 1, 1996
304 Concord Road
Billerica, MA 01821-3485
Phone: 508-670-0800
Fax: 508-670-1173
... e x p e r t s i n s o f t w a r e m a i n t e n a n c e
<PAGE>
STATUS COMPUTER, INC.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
------- ----- ----
<S> <C> <C>
1.0 Statement of Work 3
2.0 Requirements and Responsibilities 10
3.0 Term 13
4.0 Fees 14
5.0 Payment Schedule 15
6.0 Miscellaneous 15
7.0 Definitions 16
8.9 Acceptance 18
</TABLE>
- --------------------------------------------------------------------------------
Peritus Software Services, Inc. February 1, 1996 Page 2 of 18
<PAGE>
STATUS COMPUTER, INC.
- --------------------------------------------------------------------------------
1.0 Statement of Work
Pages 3 through 12
contain confidential materials which have
been omitted and filed separately with the
Securities and Exchange Commission
- --------------------------------------------------------------------------------
Peritus Software Services, Inc. February 1, 1996 Page 3 of 18
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
STATUS COMPUTER, INC.
- --------------------------------------------------------------------------------
*********************************************************************
*********************************************************************
************************************
*********************************
***********************
3.0 Term
3.1 The term of this agreement shall be three (3) years.
3.2 The agreement may be renewed for one (1) year terms unless either party
notifies the other in writing of an intent not to renew one hundred
twenty (120) days prior to the expiration of the agreement or
extension, whichever is applicable.
- --------------------------------------------------------------------------------
Peritus Software Services, Inc. February 1, 1996 Page 13 of 18
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
STATUS COMPUTER, INC.
- --------------------------------------------------------------------------------
4.0 Fees
4.1 The Peritus fees will be per the following table:
***** ***** ***** *****
***************************
****** ***** ***** *****
************************ ***** ***** *****
************************ ***** ***** *****
**********************************************************
**********************************************************
***************************
***************************
**************************
*************** ***** ***** *****
*************** ***** ***** *****
*************** ***** ***** *****
*************** ***** ***** *****
************************ ***** ***** *****
*************************
************************ ***** ***** *****
*************************
************************ ***** ***** *****
************************ ***** ***** *****
************************ ***** ***** *****
************************ ************
************
************************ ************
************
- --------------------------------------------------------------------------------
Peritus Software Services, Inc. February 1, 1996 Page 14 of 18
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
STATUS COMPUTER, INC.
- --------------------------------------------------------------------------------
Note 2: After a combined total of ************************** of Problem Analysis
Support and Miscellaneous Software Maintenance Support in one (1) contract year,
the fee will increase to ***********************.
Note 3: This fee is subject to change after one (1) year with ninety (90) day
written notice by Peritus.
4.2 Expenses will be charged for work performed under Section 1.14 and 2.18.
4.3 The Peritus fees for work performed under Section 1.17 will be a per the
proposal submitted by Peritus.
5.0 Payment Schedule and Terms
5.1 Peritus will submit an invoice quarterly in advance for *****. This fee
may be adjusted (increased or decreased) at the start of each contract
year by mutual agreement between Stratus and Peritus.
5.2 At the end of each quarter, Peritus will submit an invoice for the work
actually performed based on the fee schedule shown in Section 4.1 less
the advance payment previously invoiced and specified in Section 5.1.
5.3 For expenses identified in Section 4.2, Peritus will submit invoices
upon completion of the work. Included with the invoices will be
documentation which supports and verifies the expenses.
5.4 For fees identified in Section 4.3, Peritus will submit invoices
monthly as the work is performed or based upon a mutually agreed to
schedule.
5.5 Peritus' payment terms are net 30 days.
6.0 Miscellaneous
6.1 Peritus will assign project manager who will be directly responsible
for the performance of this agreement. Peritus will also assign an
account manager who shall be responsible for the overall relationship
between Stratus and Peritus.
6.2 Stratus shall assign a liaison manager (or program manager) to be the
principle contact for Peritus. The liaison manager shall be responsible
for the daily interaction between Peritus and Stratus, shall assist
Peritus with all communications within Stratus, and will insure that all
Stratus responsibilities are fulfilled.
- --------------------------------------------------------------------------------
Peritus Software Services, Inc. February 1, 1996 Page 14 of 18
<PAGE>
STATUS COMPUTER, INC.
- --------------------------------------------------------------------------------
6.3 Peritus shall meet formally with the Stratus liaison manager (and
others as required) biweekly or at the request of either party. The
purpose of these meetings is to report progress, identify issues and
problems, develop solutions to issues and problems, conduct other such
business as is necessary for proper performance, and to ensure Stratus'
satisfaction.
6.4 Peritus recommends a monthly meeting with Stratus senior management.
The purpose of the meeting is to present significant issues which
require resolution.
6.5 Peritus shall continue to provide Stratus a monthly performance report.
The contents of this report will be mutually agreed to by Stratus and
Peritus.
6.6 All material, documentation, data, software systems, hardware systems,
and test equipment which are provided to Peritus by Stratus during the
term of the agreement shall be returned by Peritus to Stratus upon the
expiration or termination of the agreement or when no longer required
for the performance of the agreement.
7.0 Definitions
7.1 Defect resolutions as used in this agreement are defined as follows:
a) A valid defect was reported and a correction has been generated
and submitted to an appropriate source tree.
b) A valid defect was reported and a correction has no been
generated because a correction is not feasible within the
constraints of the design and/or implementation.
c) A valid defect was reported and a course has been determined. A
correction will not be generated because a preliminary analysis
of the correction indicates that it may cause unknown and
serious regressions due to constraints in the design and/or
implementation of the affected software component.
d) The software component conforms to the appropriate specification
and need not be changed.
e) The software component conforms to the appropriate specification
and the defect report will be treated as an enhancement request
and considered for future implementation.
f) The software component conforms to the appropriate specification
and will not be changed but the appropriate documentation will
be clarified.
- --------------------------------------------------------------------------------
Peritus Software Services, Inc. February 1, 1996 Page 16 of 18
<PAGE>
STATUS COMPUTER, INC.
- --------------------------------------------------------------------------------
g) The reported defect is caused by a hardware malfunction.
h) The reported defect has only occurred once and could not be
reproduced or isolated.
i) The reported defect is found to be a duplicate of a previously
reported defect which had been resolved.
j) Stratus and Peritus mutually determine for any or no reasons
that no further effort is required.
7.2 The Stratus defect priorities (critical, serious, normal, and minor and
those categories used for Enhanced Services are a defined in SED 122 or
subsequent specification.
7.3 The Stratus Problem resolution phases are defined as follows:
T1 - The period from receipt of the original report of a problem to
the date the failure analysis is complete and a defect can be
described, either through a reproducible test case or the
isolation of the defect within the code. At this point, the
problem is entered into QTS as a defect.
T2 - The period form entry of the defect into QTS until a resolution
has been submitted and all audits, unit, and system tests are
complete. Traditionally referred to as "find and fix."
T3 - The period during which the appropriate release or patch tape is
built, validated, and made ready for manufacturing and
distribution.
T4 - The period during which the media is reproduced, distributed,
and made available to the customer.
T5 - The period of time from distribution of the media to a customer
through installation by the customer.
7.4 A backlog defect is one which has been entered into QTS and not yet
escalated or one which is found by Peritus (and subsequently entered
into QTS) in the course of performing other work.
- --------------------------------------------------------------------------------
Peritus Software Services, Inc. February 1, 1996 Page 17 of 18
<PAGE>
STATUS COMPUTER, INC.
- --------------------------------------------------------------------------------
8.0 Acceptance
8.1 This Statement of Work is issued and signed pursuant to the Engineering
and Consultant Services Agreement, between the parties, dated November
30, 1993, as amended May 30, 1995.
8.2 This agreement has been accepted by Stratus Computer, Inc. and Peritus
Software Services, Inc. as Appendix A1 to the Engineering Consultant
Services Agreement which exists between the two companies. This
agreement replaces the previous version of Appendix A1 which was
identified as "revision 1.4, April 14, 1995."
for Stratus Computer, Inc. for Peritus Software Services, Inc.
/s/ J. Standfird /s/ Peter E. McElroy
------------------------------ -----------------------------------
Name Name
------------------------------ -----------------------------------
Title Title
------------------------------ -----------------------------------
Date Date
Please sign both copies of this agreement and return one copy to
Peritus Software Services, Inc. 304 Concord Road, Billerica, MA
01821-3485
- --------------------------------------------------------------------------------
Peritus Software Services, Inc. February 1, 1996 Page 18 of 18
<PAGE>
EXHIBIT 10.27
PERITUS SOFTWARE SERVICES, INC.
304 Concord Road
Billerica, MA 01821
September 6, 1996
Fleet National Bank
75 State Street
Boston, MA 02109
Gentlemen:
This letter agreement will set forth certain understandings between Peritus
Software Services, Inc., a Massachusetts corporation (the "Borrower") and Fleet
National Bank (the "Bank") with respect to Revolving Loans and Term Loans (each
as hereinafter defined) which may be made by the Bank to the Borrower and with
respect to letters of credit which may hereafter be issued by the Bank for the
account of the Borrower. In consideration of the mutual promises contained
herein and in the other documents referred to below, and for other good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
-----------------
1.1. Reference to Documents. Reference is made to (i) that certain
----------------------
$3,500,000 face principal amount revolving promissory note (the "Revolving
Note") of even date herewith made by the Borrower and payable to the order of
the Bank, (ii) those certain $1,500,000 aggregate face principal amount term
promissory notes (the "Term Notes") of even date herewith made by the Borrower
and payable to the order of the Bank, (iii) that certain Inventory, Accounts
Receivable and Intangibles Security Agreement and that certain Supplementary
Security Interest - Security Interest in Goods and Chattels, each of even date
herewith, from the Borrower to the Bank (collectively, the "Security
Agreement"), and (iv) assignments and notices of assignment (collectively, the
"Intellectual Property Assignments") from the Borrower to the Bank relating to
the Borrower's registered trademarks, patents and copyrights, if any.
1.2. Revolving Loans; Revolving Note. Subject to the terms and conditions
-------------------------------
hereinafter set forth, the Bank will make loans ("Revolving Loans") to the
Borrower, in such amounts as the Borrower may request, on any Business Day prior
to the first to occur of (i) the Expiration Date, or (ii) the earlier
termination of the within-described revolving financing arrangements pursuant to
(S)5.2 or (S)6.7; provided, however, that (1) the aggregate principal amount of
Revolving Loans outstanding shall at no time exceed the Maximum
-1-
<PAGE>
Revolving Amount (hereinafter defined) and (2) the Aggregate Revolving Bank
Liabilities (hereinafter defined) shall at no time exceed the Borrowing Base
(hereinafter defined). Within such limits, and subject to the terms and
conditions hereof, the Borrower may obtain Revolving Loans, repay Revolving
Loans and obtain Revolving Loans again on one or more occasions. The Revolving
Loans shall be evidenced by the Revolving Note and interest thereon shall be
payable at the times and at the rate provided for in the Revolving Note. Overdue
principal of the Revolving Loans and, to the extent permitted by law, overdue
interest shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the per
annum rate otherwise payable under the Revolving Note (but in no event in excess
of the maximum rate from time to time permitted by then applicable law),
compounded monthly and payable on demand. The Borrower hereby irrevocably
authorizes the Bank to make or cause to be made, on a schedule attached to the
Revolving Note or on the books of the Bank, at or following the time of making
each Revolving Loan and of receiving any payment of principal, an appropriate
notation reflecting such transaction and the then aggregate unpaid principal
balance of the Revolving Loans. The amount so noted shall constitute presumptive
evidence as to the amount owed by the Borrower with respect to principal of the
Revolving Loans. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrower or any right of the Bank
hereunder or under the Revolving Note.
1.3. Repayment; Renewal of Revolving Loan Facility. The Borrower shall
---------------------------------------------
repay in full all Revolving Loans and all interest thereon upon the first to
occur of: (i) the Expiration Date, or (ii) an acceleration under (S)5.2(a)
following an Event of Default. The Borrower may repay at any time, without
penalty or premium, the whole or any portion of any Revolving Loan. In addition,
if at any time the Borrowing Base is in an amount which is less than the then
outstanding Aggregate Revolving Bank Liabilities, the Borrower will forthwith
prepay so much of the Revolving Loans as may be required (or arrange for
termination of such letters of credit as may be required) so that the Aggregate
Revolving Bank Liabilities will not exceed the Borrowing Base. The Bank may, at
its sole discretion, renew the revolving financing arrangements described in
this letter agreement by extending the Expiration Date in a writing signed by
the Bank and accepted by the Borrower. Neither the inclusion in this letter
agreement or elsewhere of covenants relating to periods of time after the
Expiration Date, nor any other provision hereof, nor any action (except a
written extension pursuant to the immediately preceding sentence), non-action or
course of dealing on the part of the Bank will be deemed an extension of, or
agreement on the part of the Bank to extend, the Expiration Date.
1.4. Term Loans; Term Notes. In addition to the foregoing, the Bank may
----------------------
make one or more loans (the "Term Loans") to the Borrower in an aggregate
principal amount up to $1,500,000. On or about the date of execution and
delivery of this letter agreement, the Bank is making a Term Loan (the "Initial
Term Loan") to the Borrower in order to refinance the costs of items of
Qualifying Equipment acquired by the Borrower on or prior to June 30, 1996 and
heretofore expressly approved by the Bank for this purpose. The Initial Term
Loan
-2-
<PAGE>
will be in the original principal amount of $675,000. Following the Initial Term
Loan, the Bank may make one or more additional loans (the "Additional Term
Loans") to the Borrower, at the Borrower's request, with no more than one
Additional Term Loan to be made per calendar quarter (except that more than one
Additional Term Loan may be made in any calendar quarter provided that each such
Additional Term Loan in any one calendar quarter following the first such
Additional Term Loan during such calendar quarter is in an amount of at least
$50,000). Additional Term Loans shall be made in order to finance costs of
Qualifying Equipment acquired by the Borrower after June 30, 1996 and within the
90 days preceding the request for such Additional Term Loan, each such
Additional Term Loan to be in such amount as may be requested by the Borrower;
provided that (i) no Additional Term Loan will be made after June 30, 1997; (ii)
the aggregate original principal amounts of all Additional Term Loans will not
exceed $825,000; and (iii) no Additional Term Loan will be in an amount more
than 80% of the invoiced actual costs of the tangible property constituting the
items of Qualifying Equipment with respect to which such Additional Term Loan is
made (excluding taxes, shipping, software (other than custom software which is
not prepackaged "shrink-wrapped" software with an invoiced cost not in excess of
$150,000 in the aggregate), installation charges, training fees and other "soft
costs"). Prior to the making of each Term Loan, and as a precondition thereto,
the Borrower will provide the Bank with: (i) invoices supporting the costs of
the relevant Qualifying Equipment; (ii) such evidence as the Bank may reasonably
require showing that the relevant Qualifying Equipment has been delivered to and
installed at the Borrower's Billerica, MA premises, has become fully
operational, has been paid for by the Borrower and is owned by the Borrower free
of all liens and interests of any other Person (other than the security interest
of the Bank pursuant to the Security Agreement); (iii) Uniform Commercial Code
financing statements, if needed, reflecting the relevant Qualifying Equipment
with respect to which such Term Loan is being made; and (iv) evidence
satisfactory to the Bank that the Qualifying Equipment is fully insured against
casualty loss, with insurance naming the Bank as secured party and first loss
payee.
The Initial Term Loan is evidenced by a $675,000 original principal amount
promissory note of the Borrower of even date herewith (the "Initial Term Note")
and the Additional Term Loans will be evidenced by a $825,000 face principal
amount promissory note of the Borrower of even date herewith (the "Additional
Term Note"). Interest on each of the Term Loans shall be payable at the times
and at the rate provided for in the Term Note relating thereto. Overdue
principal of any Term Loan and, to the extent permitted by law, overdue interest
shall bear interest at a fluctuating rate per annum which at all times shall be
equal to the sum of (i) two (2%) percent per annum plus (ii) the per annum rate
otherwise payable under the Term Note relating thereto (but in no event in
excess of the maximum rate from time to time permitted by then applicable law),
compounded monthly and payable on demand. The Borrower hereby irrevocably
authorizes the Bank to make or cause to be made, on a schedule attached to the
relevant Term Note or on the books of the Bank, at or following the time of
making each Term Loan and of receiving any payment of principal, an appropriate
notation reflecting such transaction and the then aggregate unpaid principal
balance of the
-3-
<PAGE>
Term Loan or Loans represented by such Term Note. The amount so noted shall
constitute presumptive evidence as to the amount owed by the Borrower with
respect to principal of the relevant Term Loan or Term Loans. Failure of the
Bank to make any such notation shall not, however, affect any obligation of the
Borrower or any right of the Bank hereunder or under any Term Note.
1.5. Principal Repayment of Term Loans. The Borrower will repay principal
---------------------------------
of the Initial Term Loan in 36 equal consecutive monthly installments,
commencing on October 1, 1996 and continuing on the first day of each month
thereafter through and including September 1, 1999, when all remaining principal
of the Initial Term Loan and all interest accrued but unpaid thereon shall be
due and payable in full. The Borrower will repay principal of the Additional
Term Loans in 36 equal consecutive monthly installments, commencing on July 1,
1997 and continuing on the first day of each month thereafter. Each such
monthly installment of principal payable with respect to the Additional Term
Loans will be in an amount equal to 1/36th of the aggregate principal amount of
the Additional Term Loans outstanding at June 30, 1997. In any event, the then
outstanding principal balance of the Additional Term Loans and all interest then
accrued but unpaid thereon shall be due and payable in full on June 1, 2000.
The Borrower may prepay, at any time or from time to time, without premium or
penalty, the whole or any portion of any Term Loan; provided that each such
principal prepayment shall be accompanied by payment of all interest under the
relevant Term Note accrued but unpaid to the date of payment. Any partial
prepayment of principal of the Term Loans will be applied to installments of
principal of the Term Loans thereafter coming due, being applied in inverse
order of normal maturity.
1.6. Advances and Payments. The proceeds of all Loans shall be credited by
---------------------
the Bank to a general deposit account maintained by the Borrower with the Bank
or otherwise as the Borrower may direct. The proceeds of each Revolving Loan
will be used by the Borrower solely for working capital purposes and to repay
certain loans owed to Danvers Savings Bank and certain bridge loans owed to
Dominic Chan and Allen Deary. The proceeds of each Term Loan will be used by
the Borrower solely to pay or reimburse acquisition costs of Qualifying
Equipment.
The Bank may charge any general deposit account of the Borrower at the Bank
with the amount of all payments of interest, principal and other sums when same
are due, from time to time, under this letter agreement and/or any Note and/or
with respect to any letter of credit; and will thereafter notify the Borrower of
the amount so charged. The failure of the Bank so to charge any account or to
give any such notice shall not affect the obligation of the Borrower to pay
interest, principal or other sums as provided herein or in any Note or with
respect to any letter of credit.
Whenever any payment to be made to the Bank hereunder or under any Note or
with respect to any letter of credit shall be stated to be due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day, and interest payable on
-4-
<PAGE>
each such date shall include the amount thereof which shall accrue during the
period of such extension of time. All payments by the Borrower hereunder and/or
in respect of any Note and/or with respect to any letter of credit shall be made
net of any impositions or taxes and without deduction, set-off or counterclaim,
notwithstanding any claim which the Borrower may now or at any time hereafter
have against the Bank. All payments of interest, principal and any other sum
payable hereunder and/or under any Note and/or with respect to any letter of
credit shall be made to the Bank, in immediately available funds, at its office
at 75 State Street, Boston, MA 02109 or at such other address as the Bank may
from time to time direct. All payments received by the Bank after 2:00 p.m. on
any day shall be deemed received as of the next succeeding Business Day. All
monies received by the Bank shall be applied first to fees, charges, costs and
expenses payable to the Bank under this letter agreement, any Note and/or any of
the other Loan Documents and/or with respect to any letter of credit, next to
interest then accrued on account of any Loans or letter of credit reimbursement
obligations and only thereafter to principal of the Loans and letter of credit
reimbursement obligations, being applied against the Loans and/or such
obligations in such order as the Borrower may designate (and, failing such
designation, being applied first against the letter of credit reimbursement
obligations, next against the Revolving Loans and thereafter against
installments of the Term Loans in inverse order of normal maturity). All
interest and fees payable hereunder and/or under any Note shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
1.7. Letters of Credit. At the Borrower's request, the Bank may, from time
-----------------
to time, in its sole discretion issue one or more letters of credit for the
account of the Borrower; provided that at the time of such issuance and after
giving effect thereto the Aggregate Revolving Bank Liabilities will in no event
exceed the lesser of (i) $3,500,000 or (ii) the then effective Borrowing Base.
Any such letter of credit will be issued for such fee and upon such terms and
conditions as may be agreed to by the Bank and the Borrower at the time of
issuance. The Borrower hereby authorizes the Bank, without further request from
the Borrower, to cause the Borrower's liability to the Bank for reimbursement of
funds drawn under any such letter of credit to be repaid from the proceeds of a
Revolving Loan to be made hereunder. The Borrower hereby irrevocably requests
that such Revolving Loans be made.
1.8. Conditions to Advance. Prior to the making of the initial Loan
---------------------
hereunder or the issuance of any letter of credit hereunder, the Borrower shall
deliver to the Bank duly executed copies of this letter agreement, the Security
Agreement, the Intellectual Property Assignments, the Revolving Note, the Term
Notes and the documents and other items listed on the Closing Agenda delivered
herewith by the Bank to the Borrower, all of which, as well as all legal matters
incident to the transactions contemplated hereby, shall be satisfactory in form
and substance to the Bank and its counsel.
Without limiting the foregoing, any Loan or letter of credit issuance
(including the initial Loan or letter of credit issuance) is subject to the
further conditions precedent that on
-5-
<PAGE>
the date on which such Loan is made or such letter of credit is issued (and
after giving effect thereto):
(a) All statements, representations and warranties of the Borrower made in
this letter agreement and/or the Security Agreement shall continue to be correct
in all material respects as of the date of such Loan or issuance of such letter
of credit, as the case may be.
(b) All covenants and agreements of the Borrower contained herein and/or
in any of the other Loan Documents shall have been complied with in all material
respects on and as of the date of such Loan or issuance of such letter of
credit, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time or
both could constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the financial
condition of the Borrower from that disclosed in the financial statements then
most recently furnished to the Bank.
Each request by the Borrower for any Loan or for the issuance of a letter
of credit, and each acceptance by the Borrower of the proceeds of any Loan or
delivery of a letter of credit, will be deemed a representation and warranty by
the Borrower that at the date of such Loan or letter of credit issuance, as the
case may be, and after giving effect thereto all of the conditions set forth in
the foregoing clauses (a)-(d) of this (S)1.8 will be satisfied. Each request
for a Revolving Loan or letter of credit issuance will be accompanied by a
borrowing base certificate on a form satisfactory to the Bank, executed by the
chief financial officer of the Borrower, unless such a certificate shall have
been previously furnished setting forth the Borrowing Base as at a date not more
than 30 days prior to the date of the requested borrowing or the requested
letter of credit issuance, as the case may be.
II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1. Representations and Warranties. In order to induce the Bank to enter
------------------------------
into this letter agreement and to make Loans hereunder and/or issue letters of
credit hereunder, the Borrower warrants and represents to the Bank as follows:
(a) The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts. The Borrower
has full corporate power to own its property and conduct its business as now
conducted and as contemplated to be conducted, to grant the security interests
contemplated by the Security Agreement and the Intellectual Property Assignments
and to enter into and perform this letter agreement and the other Loan
Documents. The Borrower is duly qualified to do business and in good standing
(or, at the date of this letter agreement, is in the process of qualifying to do
business) in each other jurisdiction in which the Borrower maintains any
facility, sales office or warehouse and in each other jurisdiction where the
failure so to qualify could (singly or in
-6-
<PAGE>
the aggregate with all other such failures) have a material adverse effect on
the financial condition, business or prospects of the Borrower, all such
jurisdictions, as at the date of this letter agreement, being listed on item
2.1(a) of the attached Disclosure Schedule. At the date hereof, the Borrower has
no Subsidiaries, except as shown on said item 2.1(a). Except as otherwise
described on the aforesaid item 2.1(a), the Borrower owns 100% of the
outstanding capital stock of each Subsidiary. The Borrower is not a member of
any partnership or joint venture, except as shown on said item 2.1(a). No such
partnership or joint venture arrangement subjects or could subject any of the
Collateral to claims by creditors of such partnership or joint venture or
creditors of any Person (other than the Borrower) which participates in such
partnership or joint venture arrangement.
(b) All of the record owners of 5% or more of the outstanding shares of
the Borrower's capital stock, as at the date of this letter agreement, are as
set forth on item 2.1(b) of the attached Disclosure Schedule.
(c) The execution, delivery and performance by the Borrower of this letter
agreement and each of the other Loan Documents have been duly authorized by all
necessary corporate and other action and do not and will not:
(i) violate any provision of, or require any filings (other than
filings under the Uniform Commercial Code), registration, consent or approval
under, any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the Borrower;
(ii) violate any provision of the charter or by-laws of the Borrower,
or result in a breach of or constitute a default or require any waiver or
consent under any indenture or loan or credit agreement or any other
material agreement, lease or instrument to which the Borrower is a party or
by which the Borrower or any of its properties may be bound or affected or
require any other consent of any Person; or
(iii) result in, or require, the creation or imposition of any lien,
security interest or other encumbrance (other than in favor of the Bank),
upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents has been
duly executed and delivered by the Borrower and each is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms.
(e) Except as described on item 2.1(e) of the attached Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary of the Borrower before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
could hinder or prevent the consummation of the transactions contemplated hereby
or call into question the validity of this letter agreement or any of the other
Loan Documents or any other instrument provided for or contemplated by this
letter agreement or any of the
-7-
<PAGE>
other Loan Documents or any action taken or to be taken in connection with the
transactions contemplated hereby or thereby or which in any single case or in
the aggregate might result in any material adverse change in the business,
prospects, condition, affairs or operations of the Borrower or any such
Subsidiary.
(f) The Borrower is not in violation of any term of its charter or by-laws
as now in effect. Neither the Borrower nor any Subsidiary is in material
violation of any term of any mortgage, indenture or judgment, decree or order,
or any other instrument, contract or agreement to which it is a party or by
which any of its property is bound.
(g) The Borrower has filed (and has caused each Subsidiary of the Borrower
to file) all federal, foreign, state and local tax returns, reports and
estimates required to be filed by the Borrower. All such filed returns, reports
and estimates are proper and accurate and the Borrower (or the Subsidiary
concerned, as the case may be) has paid all taxes, assessments, impositions,
fees and other governmental charges required to be paid in respect of the
periods covered by such returns, reports or estimates. No deficiencies for any
tax, assessment or governmental charge have been asserted or assessed, and the
Borrower knows of no material tax liability or basis therefor.
(h) The Borrower is in compliance with (and each Subsidiary of the
Borrower is in compliance with) all requirements of law, federal, state and
local, and all requirements of all governmental bodies or agencies having
jurisdiction over it, the conduct of its business, the use of its properties and
assets, and all premises occupied by it, failure to comply with which could
(singly or in the aggregate with all other such failures) have a material
adverse effect upon the assets, business, financial condition or prospects of
the Borrower or any such Subsidiary. Without limiting the foregoing, the
Borrower has all the franchises, licenses, leases, permits, certificates and
authorizations needed for the conduct of its business and the use of its
properties and all premises occupied by it, as now conducted, owned and used and
as proposed to be conducted, owned and used.
(i) The audited financial statements of the Borrower as at December 31,
1995 and the management-generated financial statements of the Borrower as at
June 30, 1996, each heretofore delivered to the Bank, are complete and accurate
and fairly present the financial condition of the Borrower as at the date
thereof and for the period covered thereby, except that the management-generated
statements do not have footnotes and thus do not present the information which
would normally be contained in footnotes to financial statements. The Borrower
has no liability, contingent or otherwise, not disclosed in the aforesaid
December 31, 1995 financial statements that could materially affect the
financial condition of the Borrower. Since December 31, 1995, except as set
forth in said December 31, 1995 statements and/or the notes thereto there has
been no material adverse development in the business or condition of the
Borrower, and (except as aforesaid) the Borrower has not entered into any
transaction other than in the ordinary course.
-8-
<PAGE>
(j) The principal place of business and chief executive offices of the
Borrower are located at 304 Concord Road, Billerica, MA 01821 (the "Premises").
All of the books and records of the Borrower are located at the Premises.
Except as described on item 2.1(j) of the attached Disclosure Schedule, no
assets of the Borrower are located at any other address. Said item 2.1(j) of
the attached Disclosure Schedule sets forth the names and addresses of all
record owners of the Premises and of each other place where any material assets
of the Borrower are located.
(k) The Borrower owns or has a valid right to use all of the patents,
licenses, copyrights, trademarks, trade names and franchises ("Intellectual
Property") now being used or necessary to conduct its business, all of which are
described on item 2.1(k) of the attached Disclosure Schedule. None of the
Intellectual Property owned by the Borrower is represented by a registered
copyright, trademark, patent or other federal or state registration, except as
shown on said item 2.1(k). The conduct of the Borrower's business as now
operated does not conflict with valid patents, licenses, copyrights, trademarks,
trade names or franchises of others in any manner that could materially
adversely affect the business or assets or condition, financial or otherwise, of
the Borrower.
(l) None of the executive officers or key employees of the Borrower is
subject to any agreement in favor of anyone other than the Borrower which limits
or restricts that person's right to engage in the type of business activity
conducted or proposed to be conducted by the Borrower or which grants to anyone
other than the Borrower any rights in any inventions or other ideas susceptible
to legal protection developed or conceived by any such officer or key employee.
(m) The Borrower is not a party to any contract or agreement which now has
or, as far as can be foreseen by the Borrower at the date hereof, may have a
material adverse effect on the financial condition, business, prospects or
properties of the Borrower.
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
------------------------------------------------
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing arrangements contemplated hereby are in effect or any Revolving Loan
or any Term Loan or any of the other Obligations shall be outstanding or any
letter of credit issued hereunder shall be outstanding:
3.1. Legal Existence; Qualification; Compliance. The Borrower will
------------------------------------------
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will qualify to do business and remain qualified and in good
standing (and will cause each Subsidiary of the Borrower to qualify and remain
qualified and in good standing) in each other jurisdiction where it maintains
any facility, sales office, warehouse or other location and in each other
jurisdiction in which the failure so to qualify could (singly or in the
aggregate with all other such
-9-
<PAGE>
failures) have a material adverse effect on the financial condition, business or
prospects of the Borrower or any such Subsidiary. The Borrower will comply (and
will cause each Subsidiary of the Borrower to comply) with its charter documents
and by-laws. The Borrower will comply with (and will cause each Subsidiary of
the Borrower to comply with) all applicable laws, rules and regulations
(including, without limitation, ERISA and those relating to environmental
protection) other than (i) laws, rules or regulations the validity or
applicability of which the Borrower or such Subsidiary shall be contesting in
good faith by proceedings which serve as a matter of law to stay the enforcement
thereof and (ii) those laws, rules and regulations the failure to comply with
any of which could not (singly or in the aggregate) have a material adverse
effect on the financial condition, business or prospects of the Borrower or any
such Subsidiary.
3.2. Maintenance of Property; Insurance. The Borrower will maintain and
----------------------------------
preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its properties in good working order and condition, making all
necessary repairs thereto and replacements thereof. The Borrower will maintain
all such insurance as may be required under the Security Agreement and will also
maintain, with financially sound and reputable insurers, insurance with respect
to its property and business against such liabilities, casualties and
contingencies and of such types and in such amounts as shall be reasonably
satisfactory to the Bank from time to time and in any event all such insurance
as may from time to time be customary for companies conducting a business
similar to that of the Borrower in similar locales.
3.3. Payment of Taxes and Charges. The Borrower will pay and discharge
----------------------------
(and will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or property, including, without limitation, taxes, assessments, charges
or levies relating to real and personal property, franchises, income,
unemployment, old age benefits, withholding, or sales or use, prior to the date
on which penalties would attach thereto, and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon
any property of the Borrower or any such Subsidiary, except any of the foregoing
which is being contested in good faith and by appropriate proceedings which
serve as a matter of law to stay the enforcement thereof and for which the
Borrower has established and is maintaining adequate reserves. The Borrower
will pay, and will cause each of its Subsidiaries to pay, in a timely manner,
all lease obligations, all trade debt, purchase money obligations, equipment
lease obligations and all of its other material Indebtedness. The Borrower will
perform and fulfill all material covenants and agreements under any leases of
real estate, agreements relating to purchase money debt, equipment leases and
other material contracts. The Borrower will maintain in full force and effect,
and comply with the terms and conditions of, all permits, permissions and
licenses necessary or desirable for its business.
3.4. Accounts. The Borrower will maintain its principal depository and
--------
operating accounts with the Bank; provided that the Borrower may maintain its
existing accounts at Danvers Savings Bank for 30 days after the date of this
letter agreement.
-10-
<PAGE>
3.5. Conduct of Business. The Borrower will conduct, in the ordinary
-------------------
course, the business in which it is presently engaged. The Borrower will not,
without the prior written consent of the Bank, directly or indirectly (itself or
through any Subsidiary), enter into any other lines of business, businesses or
ventures.
3.6. Reporting Requirements. The Borrower will furnish to the Bank:
----------------------
(i) Within 90 days after the end of each fiscal year of the Borrower,
a copy of the annual audit report for such fiscal year for the Borrower,
including therein consolidated and consolidating balance sheets of the
Borrower and Subsidiaries as at the end of such fiscal year and related
consolidated and consolidating statements of income, stockholders' equity
and cash flow for the fiscal year then ended. The annual consolidated
financial statements shall be certified by independent public accountants
selected by the Borrower and reasonably acceptable to the Bank, such
certification to be in such form as is generally recognized as
"unqualified".
(ii) Within 45 days after the end of each fiscal quarter of the
Borrower, consolidated and consolidating balance sheets of the Borrower and
its Subsidiaries and related consolidated and consolidating statements of
income and cash flow, unaudited but complete and accurate and prepared in
accordance with generally accepted accounting principles fairly presenting
the financial condition of the Borrower as at the dates thereof and for the
periods covered thereby (except that such quarterly statements need not
contain footnotes) and certified as accurate (subject to normal year-end
audit adjustments, which shall not be material) by the chief financial
officer of the Borrower, such balance sheets to be as at the end of each
such fiscal quarter and such statements of income and cash flow to be for
such fiscal quarter and for the year to date, in each case together with a
comparison to budget.
(iii) At the time of delivery of each annual or quarterly statement
of the Borrower, a certificate executed by the chief financial officer of
the Borrower stating that he or she has reviewed this letter agreement and
the other Loan Documents and has no knowledge of any default by the
Borrower in the performance or observance of any of the provisions of this
letter agreement or of any of the other Loan Documents or, if he or she has
such knowledge, specifying each such default and the nature thereof. Each
such certificate given as at the end of any fiscal quarter shall also set
forth the calculations necessary to evidence compliance with (S)(S)3.7-
3.10.
(iv) Monthly, within 15 days after the end of each month, (A) an
aging report in form satisfactory to the Bank covering all Receivables of
the Borrower outstanding as at the end of such month and reporting as to
progress on long-term contracts and (B) a certificate of the chief
financial officer of the Borrower setting forth the Borrowing Base as at
the end of such month, all in form reasonably satisfactory to the Bank.
-11-
<PAGE>
(v) Promptly after receipt, a copy of all audits or reports submitted
to the Borrower by independent public accountants in connection with any
annual, special or interim audits of the books of the Borrower and any
letter of comments directed by such accountants to the management of the
Borrower.
(vi) Should any securities of the Borrower be publicly traded or if
registration of such securities is being sought, the Borrower will furnish
to the Bank, promptly upon same becoming available, one copy of each
financial statement, report, notice or proxy statement sent by the Borrower
to stockholders or the holders of debt securities generally, and of each
regular or periodic report and any registration statement, prospectus or
listing application filed by the Borrower with the National Association of
Securities Dealers, any securities exchange or the Securities and Exchange
Commission or any successor agency.
(vii) As soon as possible and in any event within five days of the
occurrence of any Event of Default or any event which, with the giving of
notice or passage of time or both, would constitute an Event of Default,
the statement of the Borrower setting forth details of such Event of
Default or event and the action which the Borrower proposes to take with
respect thereto.
(viii) Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
to which the Borrower or any Subsidiary of the Borrower is a party.
(ix) Promptly upon applying for, or being granted, a federal or state
registration for any copyright, trademark or patent or purchasing any
registered copyright, trademark or patent, written notice to the Bank
describing same, together with all such documents as may be required in
order to give the Bank a fully perfected first priority security interest
in each such copyright, trademark or patent.
(x) Promptly after the Borrower has knowledge thereof, written notice
of any development or circumstance which may reasonably be expected to have
a material adverse effect on the Borrower or its business, properties,
assets, Subsidiaries or condition, financial or otherwise.
(xi) Promptly upon request, such other information respecting the
financial condition, operations, Receivables, inventory, machinery or
equipment of the Borrower or any Subsidiary as the Bank may from time to
time reasonably request.
3.7. Debt to Worth. As used herein, "Determination Date" shall mean the
-------------
last day of each fiscal quarter of the Borrower. The Borrower will maintain as
at each Determination Date (commencing with September 30, 1996) on a
consolidated basis a Leverage Ratio of not more than the following: as at
September 30, 1996 - not more than 1.25 to 1; and as at
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<PAGE>
December 31, 1996 and as each subsequent Determination Date - not more than 1.0
to 1. As used herein, "Leverage Ratio" means the ratio of (x) consolidated
Senior Debt of the Borrower and Subsidiaries to (y) consolidated Capital Base of
the Borrower.
3.8. Net Worth. The Borrower will maintain as at each Determination Date
---------
(commencing September 30, 1996) a consolidated Capital Base which shall not be
less than the then-effective Capital Base Requirement. As used herein, the
"Capital Base Requirement" will be deemed to have been $2,500,000 as at June
30, 1996, and as at each Determination Date thereafter (beginning with September
30, 1996) the Capital Base Requirement will be deemed to become an amount equal
to the sum of: (i) that Capital Base Requirement which had been in effect on
the last day of the immediately preceding fiscal quarter, plus (ii) 80% of the
net proceeds of any equity securities sold by the Borrower during the fiscal
quarter ended at such Determination Date and 80% of the proceeds of any
Subordinated Debt issued by the Borrower and/or its Subsidiaries during the
fiscal quarter ended at such Determination Date (nothing contained herein being
deemed to approve the issuance of any additional Subordinated Debt), plus (iii)
80% of the consolidated Net Income of the Borrower and Subsidiaries during said
fiscal quarter ended at such Determination Date (but without giving effect to
any Net Income which is less than zero for any fiscal quarter).
3.9. Liquidity. The Borrower will maintain as at each Determination Date
---------
(commencing September 30, 1996) a ratio of Net Quick Assets to consolidated
Current Liabilities, which ratio shall be not less than 1.5 to 1.
3.10. Profitability. The Borrower will achieve: consolidated quarterly
-------------
Net Income of not less than $500,000 for its fiscal quarter ending September 30,
1996, consolidated quarterly Net Income of not less than $1,000,000 for its
fiscal quarter ending December 31, 1996 and consolidated quarterly Net Income of
not less than $500,000 for its fiscal quarter ending March 31, 1997 and for each
fiscal quarter thereafter. Without limitation of the foregoing, the Borrower
will achieve, as at each Determination Date (commencing with June 30, 1997),
cumulative consolidated Net Income of not less than $2,000,000 for the six-month
period ending at each such Determination Date.
3.11. Books and Records. The Borrower will maintain (and cause each of
-----------------
its Subsidiaries to maintain) complete and accurate books, records and accounts
which will at all times accurately and fairly reflect all of its transactions in
accordance with generally accepted accounting principles consistently applied.
The Borrower will, at any reasonable time and from time to time upon reasonable
notice and during normal business hours (and at any time and without any
necessity for notice following the occurrence of an Event of Default), permit
the Bank, and any agents or representatives thereof, to examine and make copies
of and take abstracts from the records and books of account of, and visit the
properties of the Borrower and any of its Subsidiaries, and to discuss its
affairs, finances and accounts with its managers, officers or directors and
independent accountants, all of whom are hereby authorized and directed to
cooperate with the Bank in carrying out the intent of this (S)3.11. Each
financial
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<PAGE>
statement of the Borrower hereafter delivered pursuant to this letter agreement
will be complete and accurate and will fairly present the financial condition of
the Borrower as at the date thereof and for the periods covered thereby.
3.12. Subordination Agreements. Prior to the making of the first Loan,
------------------------
the Borrower will obtain, and will thereafter maintain in effect at all times, a
subordination agreement in form and substance satisfactory to the Bank providing
for full subordination of the $1,000,000 principal amount of Indebtedness of the
Borrower owed to MCRC.
3.13. Landlord's Waiver. Prior to the making of the first Loan the
-----------------
Borrower will obtain, and will thereafter maintain in effect at all times,
waivers from the owners of all premises in which any material amount of
Collateral is located, such waivers to be in form and substance satisfactory to
the Bank.
IV. NEGATIVE COVENANTS
------------------
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing arrangements contemplated hereby are in effect or any Revolving Loan
or any Term Loan or any of the other Obligations shall be outstanding or any
letter of credit issued hereunder shall be outstanding:
4.1. Indebtedness. The Borrower will not create, incur, assume or suffer
------------
to exist any Indebtedness (nor allow any of its Subsidiaries to create, incur,
assume or suffer to exist any Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without limitation, the
Indebtedness represented by the Notes and any Indebtedness in respect of
letters of credit issued by the Bank;
(ii) Indebtedness of the Borrower or any Subsidiary for taxes,
assessments and governmental charges or levies not yet due and payable;
(iii) unsecured current liabilities of the Borrower or any Subsidiary
(other than for money borrowed or for purchase money Indebtedness with
respect to fixed assets) incurred upon customary terms in the ordinary
course of business;
(iv) purchase money Indebtedness (including, without limitation,
Indebtedness in respect of capitalized equipment leases) owed to equipment
vendors and/or lessors for equipment purchased or leased by the Borrower
for use in the Borrower's business, provided that the total of Indebtedness
permitted under this clause (iv) plus presently-existing equipment
financing permitted under clause (v) of this (S)4.1 will not exceed
$500,000 in the aggregate outstanding at any one time;
(v) other Indebtedness existing at the date hereof, but only to the
extent set
-14-
<PAGE>
forth on item 4.1 of the attached Disclosure Schedule; and
(vi) any guaranties or other contingent liabilities expressly
permitted pursuant to (S)4.3.
4.2. Liens. The Borrower will not create, incur, assume or suffer to exist
-----
(nor allow any of its Subsidiaries to create, incur, assume or suffer to exist)
any mortgage, deed of trust, pledge, lien, security interest, or other charge or
encumbrance (including the lien or retained security title of a conditional
vendor) of any nature (collectively, "Liens") upon or with respect to any of its
property or assets, now owned or hereafter acquired, except:
(i) Liens for taxes, assessments or governmental charges or levies on
property of the Borrower or any of its Subsidiaries if the same shall not
at the time be delinquent or thereafter can be paid without interest or
penalty;
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens arising in the ordinary course of
business for sums not yet due or which are being contested in good faith
and by appropriate proceedings which serve as a matter of law to stay the
enforcement thereof and as to which adequate reserves have been made;
(iii) pledges or deposits under workmen's compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors securing
purchase money Indebtedness to the extent permitted by clause (iv) of
(S)4.1; provided that no such Lien will extend to any property of the
Borrower or any Subsidiary other than the specific items of equipment
financed; or
(vi) other Liens existing at the date hereof, but only to the extent
and with the relative priorities set forth on item 4.2 of the attached
Disclosure Schedule.
4.3. Guaranties. The Borrower will not, without the prior written consent
----------
of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) (and will not permit any of its Subsidiaries so to assume,
guaranty or become directly or contingently liable) in connection with any
indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business, and (ii) currently
existing guaranties described on item 4.3 of the attached Disclosure Schedule.
4.4. Dividends. The Borrower will not, without the prior written consent
---------
of the
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<PAGE>
Bank, make any distributions to its shareholders, pay any dividends (other than
dividends payable solely in capital stock of the Borrower) or redeem, purchase
or otherwise acquire, directly or indirectly any of its capital stock.
4.5. Loans and Advances. The Borrower will not make any loans or advances
------------------
(and will not permit any of its Subsidiaries to make any loans or advances) to
any Person, including, without limitation, the Borrower's directors, officers
and employees, except advances to directors, officers or employees with respect
to expenses incurred by them in the ordinary course of their duties and advances
against salary, all of which will not exceed, in the aggregate, $250,000
outstanding at any one time.
4.6. Investments. The Borrower will not, without the Bank's prior written
-----------
consent, invest in, hold or purchase any stock or securities of any Person (nor
will the Borrower permit any of its Subsidiaries to invest in, purchase or hold
any such stock or securities) except (i) readily marketable direct obligations
of, or obligations guarantied by, the United States of America or any agency
thereof, (ii) other investment grade debt securities, (iii) mutual funds, the
assets of which are primarily invested in items of the kind described in the
foregoing clauses (i) and (ii) of this (S)4.6, (iv) deposits with or
certificates of deposit issued by the Bank and any other obligations of the Bank
or the Bank's parent, (v) deposits with or certificates of deposit issued by any
United States commercial bank having more than $100,000,000 in capital, and (vi)
investments in any Subsidiaries now existing or hereafter created by the
Borrower pursuant to (S)4.7 below; provided that in any event the Tangible Net
Worth of the Borrower alone (exclusive of its investment in Subsidiaries and any
debt owed by any Subsidiary to the Borrower) will not be less than 90% of the
consolidated Tangible Net Worth of the Borrower and Subsidiaries.
4.7. Subsidiaries; Acquisitions. The Borrower will not, without the prior
--------------------------
written consent of the Bank, form or acquire any Subsidiary or make any other
acquisition of the stock of any Person or of all or substantially all of the
assets of any other Person, except that the Borrower may form or acquire any
Subsidiary so long as the Borrower promptly notifies the Bank of such formation
or acquisition and, in any event, after giving effect to such formation or
acquisition the Borrower is in compliance with the proviso contained in clause
-------
(vi) of (S)4.6 above. The Borrower will not be or become a partner in any
partnership or joint venture if the result of such participation in a
partnership or joint venture would be to subject the assets of the Borrower
generally to claims by creditors of such partnership or joint venture.
4.8. Merger. The Borrower will not, without the prior written consent of
------
the Bank, merge or consolidate with any Person or sell, lease, transfer or
otherwise dispose of any material portion of its assets (whether in one or more
transactions), other than sale of inventory in the ordinary course.
4.9. Affiliate Transactions. The Borrower will not, without the prior
----------------------
written
-16-
<PAGE>
consent of the Bank, enter into any transaction, including, without limitation,
the purchase, sale or exchange of any property or the rendering of any service,
with any affiliate of the Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of the Borrower's business and upon fair
and reasonable terms no less favorable to the Borrower than would be obtained in
a comparable arms'-length transaction with any Person not an affiliate; provided
that nothing in this (S)4.9 shall be deemed to prohibit the payment of salary or
other similar payments to any officer or director of the Borrower at a level
consistent with the salary and other payments being paid at the date of this
letter agreement and heretofore disclosed in writing to the Bank, nor to prevent
the hiring of additional officers at a salary level consistent with industry
practice, nor to prevent reasonable periodic increases in salary. For the
purposes of this letter agreement, "affiliate" means any Person which, directly
or indirectly, controls or is controlled by or is under common control with the
Borrower; any officer or director or former officer or director of the Borrower;
any Person owning of record or beneficially, directly or indirectly, 5% or more
of any class of capital stock of the Borrower or 5% or more of any class of
capital stock or other equity interest having voting power (under ordinary
circumstances) of any of the other Persons described above; and any member of
the immediate family of any of the foregoing. "Control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of any Person, whether through ownership of voting
equity, by contract or otherwise.
4.10. Change of Address, etc. The Borrower will not change its name or
-----------------------
legal structure, nor will the Borrower move its chief executive offices or
principal place of business from the address described in the first sentence of
(S)2.1(j) above, nor will the Borrower remove any books or records from such
address, nor will the Borrower keep any Collateral at any location other than
the Premises without, in each instance, giving the Bank at least 30 days' prior
written notice and providing all such financing statements, certificates and
other documentation as the Bank may request in order to maintain the perfection
and priority of the security interests granted or intended to be granted
pursuant to the Security Agreement. The Borrower will not change its fiscal
year or methods of financial reporting unless, in each instance, prior written
notice of such change is given to the Bank and prior to such change the Borrower
enters into amendments to this letter agreement in form and substance
satisfactory to the Bank in order to preserve unimpaired the rights of the Bank
and the obligations of the Borrower hereunder.
4.11. Hazardous Waste. Except as provided below, the Borrower will not
---------------
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material", "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, Ch.
21E or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank with written notice
of (i) the intended
-17-
<PAGE>
storage or transport of any hazardous material or oil by the Borrower or any
Subsidiary of the Borrower, (ii) any potential or known release or threat of
release of any hazardous material or oil at or from any site or vessel owned,
occupied or operated by the Borrower or any Subsidiary of the Borrower, and
(iii) any incurrence of any expense or loss by any government or governmental
authority in connection with the assessment, containment or removal of any
hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport, and need not notify
the Bank of the use, storage or transportation of, (x) oil in reasonable
quantities, as fuel for heating of their respective facilities or for vehicles
or machinery used in the ordinary course of their respective businesses and (y)
hazardous materials that are solvents, cleaning agents or other materials used
in the ordinary course of the respective business operations of the Borrower and
its Subsidiaries, in reasonable quantities, as long as in any case the Borrower
or the Subsidiary concerned (as the case may be) has obtained and maintains in
effect any necessary governmental permits, licenses and approvals, complies with
all requirements of applicable federal, state and local law relating to such
use, storage or transportation, follows the protective and safety procedures
that a prudent businessperson conducting a business the same as or similar to
that of the Borrower or such Subsidiary (as the case may be) would follow, and
disposes of such materials (not consumed in the ordinary course) only through
licensed providers of hazardous waste removal services.
4.12. No Margin Stock. No proceeds of any Loan shall be used directly or
---------------
indirectly to purchase or carry any margin security.
4.13. Subordinated Debt. The Borrower will not directly or indirectly
-----------------
make any optional or voluntary prepayment or purchase of Subordinated Debt or
modify, alter or add any provisions with respect to payment or terms of
Subordinated Debt. The Borrower will not make any payment of any principal of
or interest on any Subordinated Debt at any time when there exists, or if there
would result therefrom, any Event of Default hereunder.
V. DEFAULT AND REMEDIES
--------------------
5.1. Events of Default. The occurrence of any one of the following events
-----------------
shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Revolving Note or any Term Note on or before the date when due;
or the Borrower shall fail to pay when due any amount owed to the Bank with
respect to any letter of credit now or hereafter issued by the Bank; or
(b) Any representation or warranty of the Borrower contained herein shall
at any time prove to have been incorrect in any material respect when made or
any representation or warranty made by the Borrower in connection with any Loan
or letter of credit shall at any time prove to have been incorrect in any
material respect when made; or
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<PAGE>
(c) The Borrower shall default in the performance or observance of any
agreement or obligation under any of (S)(S)3.1, 3.3, 3.6, 3.7, 3.8, 3.9 or 3.10
or Article IV; or
(d) The Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after notice thereof shall have been given to
the Borrower; or
(e) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or undertaking now existing or hereafter entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or
(f) Any default shall exist and remain unwaived or uncured with respect to
any Subordinated Debt of the Borrower or with respect to any instrument
evidencing, guaranteeing, securing or otherwise relating to any such
Subordinated Debt, or any such Subordinated Debt shall not have been paid when
due, whether by acceleration or otherwise, or shall have been declared to be due
and payable prior to its stated maturity, or any event or circumstance shall
occur which permits, or with the lapse of time or the giving of notice or both
would permit, the acceleration of the maturity of any Subordinated Debt by the
holder or holders thereof; or
(g) Any default shall exist and remain unwaived or uncured with respect to
any Indebtedness of the Borrower or any Subsidiary of the Borrower in excess of
$100,000 in aggregate principal amount or with respect to any instrument
evidencing, guaranteeing, securing or otherwise relating to any such
Indebtedness, or any such Indebtedness in excess of $100,000 in aggregate
principal amount shall not have been paid when due, whether by acceleration or
otherwise, or shall have been declared to be due and payable prior to its stated
maturity, or any event or circumstance shall occur which permits, or with the
lapse of time or the giving of notice or both would permit, the acceleration of
the maturity of any such Indebtedness by the holder or holders thereof; or
(h) The Borrower shall be dissolved, or the Borrower or any Subsidiary of
the Borrower shall become insolvent or bankrupt or shall cease paying its debts
as they mature or shall make an assignment for the benefit of creditors, or a
trustee, receiver or liquidator shall be appointed for the Borrower or any
Subsidiary of the Borrower or for a substantial part of the property of the
Borrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,
insolvency or similar proceedings shall be instituted by or against the Borrower
or any such Subsidiary under the laws of any jurisdiction (except for an
involuntary proceeding filed against the Borrower or any Subsidiary of the
Borrower which is dismissed within 60 days following the institution thereof);
or
(i) Any attachment, execution or similar process involving an amount in
excess of $100,000 shall be issued or levied against any of the property of the
Borrower or any Subsidiary and such attachment, execution or similar process
shall not be paid, stayed,
-19-
<PAGE>
released, vacated or fully bonded within 10 days after its issue or levy; or
(j) Any final uninsured judgment in excess of $100,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction; or
(k) The Borrower or any Subsidiary of the Borrower shall fail to meet its
minimum funding requirements under ERISA with respect to any employee benefit
plan (or other class of benefit which the PBGC has elected to insure) or any
such plan shall be the subject of termination proceedings (whether voluntary or
involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which in
the reasonable opinion of the Bank may have a material adverse effect upon the
financial condition of the Borrower or any such Subsidiary; or
(l) The Security Agreement or any other Loan Document shall for any reason
(other than due to payment in full of all amounts secured or evidenced thereby
or due to discharge in writing by the Bank) not remain in full force and effect;
or
(m) The security interests and liens of the Bank in and on any of the
Collateral covered or intended to be covered by the Security Agreement shall for
any reason (other than written release by the Bank) not be fully perfected liens
and security interests; or
(n) If, at any time, more than 50% of any class of voting stock of the
Borrower shall be held, of record and/or beneficially, by any Person or by any
"group" (as defined in the Securities Exchange Act of 1934, as amended, and the
regulations thereunder) other than by one or more of the Persons listed on item
5.1(n) of the attached Disclosure Schedule or a group consisting solely of such
Persons; or
(o) There shall occur any other material adverse change in the condition
(financial or otherwise), operations, properties, assets, liabilities or
earnings of the Borrower.
5.2. Rights and Remedies on Default. Upon the occurrence of any Event of
------------------------------
Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amounts of the Revolving Note and
each Term Note then outstanding, all interest accrued and unpaid thereon and all
other amounts payable under this letter agreement and all other Indebtedness of
the Borrower to the Bank to be forthwith due and payable, whereupon the same
shall become forthwith due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the revolving financing arrangements and term loan facility
provided for by this letter agreement.
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<PAGE>
(c) Exercise all rights and remedies hereunder, under the Revolving Note,
under the Term Notes, under the Security Agreement, under the Intellectual
Property Assignments and under each and any other agreement with the Bank; and
exercise all other rights and remedies which the Bank may have under applicable
law.
5.3. Set-off. In addition to any rights now or hereafter granted under
-------
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice of any
kind to the Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at any time held or owing by the Bank or any affiliate
thereof to or for the credit or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower to the Bank under
this letter agreement or otherwise, irrespective of whether or not the Bank
shall have made any demand hereunder and although said obligations, liabilities
or claims, or any of them, may then be contingent or unmatured and without
regard for the availability or adequacy of other collateral. As further
security for the Obligations, the Borrower also grants to the Bank a security
interest with respect to all its deposits and all securities or other property
in the possession of the Bank or any affiliate of the Bank from time to time,
and, upon the occurrence of any Event of Default, the Bank may exercise all
rights and remedies of a secured party under the Uniform Commercial Code.
5.4. Letters of Credit. Without limitation of any other right or remedy of
-----------------
the Bank, (i) if an Event of Default shall have occurred and the Bank shall have
accelerated the Revolving Loans or (ii) if this letter agreement and/or the
revolving financing arrangements described herein shall have expired or shall
have been earlier terminated by either the Bank or the Borrower for any reason,
the Borrower will forthwith deposit with the Bank in cash a sum equal to the
total of all then undrawn amounts of all outstanding letters of credit issued by
the Bank for the account of the Borrower.
VI. MISCELLANEOUS
-------------
6.1. Costs and Expenses. The Borrower agrees to pay on demand all costs
------------------
and expenses (including, without limitation, reasonable legal fees) of the Bank
in connection with the preparation, execution and delivery of this letter
agreement, the Security Agreement, the Revolving Note, the Term Notes and all
other instruments and documents to be delivered in connection with any Loan or
letter of credit issued hereunder and any amendments or modifications of any of
the foregoing, as well as the costs and expenses (including, without limitation,
the reasonable fees and expenses of legal counsel) incurred by the Bank in
connection with preserving, enforcing or exercising, upon default, any rights or
remedies under this letter agreement, the Security Agreement, the Revolving
Note, the Term Notes and all other instruments and documents delivered or to be
delivered hereunder or in connection herewith, all whether or not legal action
is instituted. In addition, the Borrower shall be obligated to pay any and all
stamp and other taxes payable or determined to be payable in
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<PAGE>
connection with the execution and delivery of this letter agreement, the
Security Agreement, the Revolving Note, the Term Notes and all other instruments
and documents to be delivered in connection with any Obligation. Any fees,
expenses or other charges which the Bank is entitled to receive from the
Borrower under this Section shall bear interest from the date of any demand
therefor until the date when paid at a rate per annum equal to the sum of (i)
two (2%) percent plus (ii) the per annum rate otherwise payable under the
Revolving Note (but in no event in excess of the maximum rate permitted by then
applicable law) .
6.2. Capital Adequacy. If the Bank shall have determined that the adoption
----------------
or phase-in after the date hereof of any applicable law, rule or regulation
regarding capital requirements for banks or bank holding companies, or any
change therein after the date hereof, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Bank with any request or directive of such entity regarding capital
adequacy (whether or not having the force of law) has or would have the effect
of reducing the return on the Bank's capital with respect to the Revolving
Loans, the Term Loans and/or the within-described revolving and term loan
facilities and/or letters of credit issued for the account of the Borrower to a
level below that which the Bank could have achieved (taking into consideration
the Bank's policies with respect to capital adequacy immediately before such
adoption, phase-in, change or compliance and assuming that the Bank's capital
was then fully utilized) but for such adoption, phase-in, change or compliance
by any amount deemed by the Bank to be material: (i) the Bank shall promptly
after its determination of such occurrence give notice thereof to the Borrower;
and (ii) the Borrower shall pay forthwith to the Bank as an additional fee such
amount as the Bank certifies to be the amount that will compensate it for such
reduction with respect to the Revolving Loans, the Term Loans, the within-
described revolving and term loan facilities and/or such letters of credit.
A certificate of the Bank claiming compensation under this Section shall be
conclusive in the absence of manifest error. Such certificate shall set forth
the nature of the occurrence giving rise to such compensation, the additional
amount or amounts to be paid to it hereunder and the method by which such
amounts were determined. In determining such amounts, the Bank may use any
reasonable averaging and attribution methods. No failure on the part of the
Bank to demand compensation on any one occasion shall constitute a waiver of its
right to demand such compensation on any other occasion and no failure on the
part of the Bank to deliver any certificate in a timely manner shall reduce any
obligation of the Borrower to the Bank under this Section.
6.3. Facility Fees. With respect to the Term Loans, the Borrower is paying
-------------
to the Bank, at the date of execution and delivery of this letter agreement a
non-refundable facility fee in the amount of $7,500. The Borrower will also pay
to the Bank with respect to the within arrangements for Revolving Loans, on the
date of this letter agreement and thereafter on the first day of each calendar
quarter (commencing on October 1, 1996) as long as the
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<PAGE>
within-described revolving loan arrangements are in effect a non-refundable
quarterly facility fee payable in advance in the amount of $4,375 per quarter
(appropriately pro-rated for any partial calendar quarter). In addition, if the
within-described revolving financing arrangements are terminated by the Borrower
for any reason or by the Bank as the result of the Borrower's default, the
Borrower shall forthwith upon such termination pay to the Bank a sum equal to
all of the fees which would have become due pursuant to the immediately
preceding sentence from the date of such termination through the Expiration
Date. Fees described in this Section are in addition to any balances and fees
required by the Bank or any of its affiliates in connection with any other
services now or hereafter made available to the Borrower.
6.4. Other Agreements. The provisions of this letter agreement are not in
----------------
derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between
this letter agreement and any of the other Loan Documents or any such other
agreement will be deemed to create any additional grace period or otherwise
derogate from the express terms of each such default provision. No covenant,
agreement or obligation of the Borrower contained herein, nor any right or
remedy of the Bank contained herein, shall in any respect be limited by or be
deemed in limitation of any inconsistent or additional provisions contained in
any of the other Loan Documents or any such other agreement.
6.5. Governing Law. This letter agreement and the Notes shall be governed
-------------
by, and construed and enforced in accordance with, the laws of The Commonwealth
of Massachusetts.
6.6. Addresses for Notices, etc. All notices, requests, demands and other
--------------------------
communications provided for hereunder shall be in writing and shall be mailed or
delivered to the applicable party at the address indicated below:
If to the Borrower:
Peritus Software Services, Inc.
304 Concord Road
Billerica, MA 01821
Attention: John E. MacPhee, Director of Finance and Treasurer
If to the Bank:
Fleet National Bank
High Technology Group
75 State Street
Boston, MA 02109
Attention: Thomas W. Davies, Vice President
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<PAGE>
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be effective two (2) days after deposit in the United
States mails, if sent postage prepaid, certified or registered mail, return
receipt requested, addressed as aforesaid. If any such notice, request, demand
or other communication is hand delivered, same shall be effective upon receipted
delivery.
6.7. Binding Effect; Assignment; Termination. This letter agreement shall
---------------------------------------
be binding upon the Borrower, its successors and assigns and shall inure to the
benefit of the Borrower and the Bank and their respective permitted successors
and assigns. The Borrower may not assign this letter agreement or any rights
hereunder without the express written consent of the Bank. The Bank may, in
accordance with applicable law, from time to time assign or grant participations
in this letter agreement, the Loans, the Notes and/or any letters of credit
issued hereunder. The Borrower may terminate this letter agreement and the
financing arrangements made herein by giving written notice of such termination
to the Bank, together with the payment described in the third sentence of
(S)6.3; provided that no such termination will release or waive any of the
Bank's rights or remedies or any of the Borrower's obligations under this letter
agreement or any of the other Loan Documents unless and until the Borrower has
paid in full all Loans and all interest thereon and all fees and charges payable
in connection therewith and all letters of credit issued hereunder have been
terminated.
6.8. Consent to Jurisdiction. The Borrower irrevocably submits to the non-
-----------------------
exclusive jurisdiction of any Massachusetts court or any federal court sitting
within The Commonwealth of Massachusetts over any suit, action or proceeding
arising out of or relating to this letter agreement and/or any Note. The
Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding brought in such a court and any claim that any such
suit, action or proceeding has been brought in an inconvenient forum. The
Borrower agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be enforced in any court of proper jurisdiction by
a suit upon such judgment, provided that service of process in such action, suit
or proceeding shall have been effected upon the Borrower in one of the manners
specified in the following paragraph of this (S)6.8 or as otherwise permitted by
law.
The Borrower hereby consents to process being served in any suit, action or
proceeding of the nature referred to in the preceding paragraph of this (S)6.8
either (i) by mailing a copy thereof by registered or certified mail, postage
prepaid, return receipt requested, to it at its address set forth in (S)6.6 or
(ii) by serving a copy thereof upon it at its address set forth in (S)6.6.
6.9. Severability. In the event that any provision of this letter
------------
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be
-24-
<PAGE>
invalid or unenforceable, the remainder of this letter agreement, and the
application of such provision to Persons, properties or circumstances other than
those as to which it has been held invalid and unenforceable, shall not be
affected thereby, and each provision of this letter agreement shall be valid and
enforced to the fullest extent permitted by law.
VII. DEFINED TERMS
-------------
7.1. Definitions. In addition to terms defined elsewhere in this letter
-----------
agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"Additional Term Loans" - As defined in (S)1.4.
"Additional Term Note" - As defined in (S)1.4.
"Aggregate Revolving Bank Liabilities" - At any time, the sum of (i) the
principal amount of all Revolving Loans then outstanding, plus (ii) all then
undrawn amounts of letters of credit issued by the Bank for the account of the
Borrower, plus (iii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"Borrowing Base" - At any time, the sum of (i) 75% of the aggregate
principal amount of the Qualified Receivables of the Borrower then outstanding,
plus (ii) 50% of the aggregate principal amount of the Eligible Contract Payment
of the Borrower then outstanding.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a public
holiday under the laws of the United States of America or The Commonwealth of
Massachusetts applicable to a national bank.
"Capital Base" - At any time, the sum of (i) the consolidated Tangible Net
Worth of the Borrower and Subsidiaries then existing plus (ii) the principal
amount of Subordinated Debt of the Borrower then outstanding (nothing contained
herein being deemed to authorize the incurrence of any additional Subordinated
Debt).
"Collateral" - All property now or hereafter owned by the Borrower or in
which the Borrower now or hereafter has any interest which is described as
"Collateral" in the Security Agreement or in Subsection 7.2(b) below.
"Current Liabilities" - All liabilities of the Borrower or of any of the
Borrower's Subsidiaries which are properly shown as current liabilities on a
consolidated balance sheet of the Borrower prepared in accordance with generally
accepted accounting principles consistently applied. Further, "Current
Liabilities" will in any event be deemed to include the Revolving Loans.
"Determination Date" - As defined in (S)3.7.
-25-
<PAGE>
"Eligible Contract Payments" - As at any date when same are to be
determined, all amounts earned by the Borrower by performance under any written
contract for services rendered in the ordinary course of the Borrower's business
and not yet billed to the extent that such amounts are scheduled, pursuant to
the respective contracts with customers under which same have arisen, to be
received by the Borrower within the 12 months following such date; provided that
no such amount will be deemed includable in Eligible Contract Payments (i) if
payment of such amount is subject to any developmental milestones, delivery
requirements or other conditions other than the mere passage of time (other than
source code maintenance obligations in the ordinary course of the Borrower's
business); (ii) if the Bank does not have a fully perfected first priority
security interest in the contract under which the Borrower's right to receive
payment of such amount has arisen and in the proceeds thereof; (iii) if the
relevant customer is an affiliate of the Borrower (Bull HN not being deemed to
be an "affiliate" of the Borrower for the purpose of this definition); (iv) if
such amount is owed by a customer located outside the United States; (v) if the
Borrower has failed to perform in any respect under the relevant contract or if
the relevant customer has disputed liability or has failed to pay when due any
monetary obligation under the relevant contract or under any other contract with
the Borrower; (vi) if the relevant customer is not deemed by the Bank to be of
sufficient financial strength for this purpose; (vii) to the extent that such
amount is subject to any offset, dispute, claim, counterclaim, credit,
allowance, reserve or other defense; (viii) if the relevant customer is the
United States of America or any department, agency or instrumentality thereof,
unless the relevant contract has been assigned to the Bank under the Federal
Assignment of Claims Act; or (ix) if such amount is otherwise determined by the
Bank in its discretion to be difficult to collect or uncollectable.
"ERISA" - The Employee Retirement Income Security Act of 1974, as amended.
"Expiration Date" - June 30, 1997, unless extended by the Bank, which
extension may be given or withheld by the Bank in its sole discretion.
"Indebtedness" - The total of all obligations of a Person, whether current
or long-term, senior or subordinated, which in accordance with generally
accepted accounting principles would be included as liabilities upon such
Person's balance sheet at the date as of which Indebtedness is to be determined,
and shall also include guaranties, endorsements (other than for collection in
the ordinary course of business) or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase or
otherwise acquire the obligations of others, including any agreement, contingent
or otherwise, to furnish funds through the purchase of goods, supplies or
services for the purpose of payment of the obligations of others.
"Initial Term Loan" - As defined in (S)1.4.
"Initial Term Note" - As defined in (S)1.4.
"Loan Documents" - Each of this letter agreement, the Revolving Note, the
Term
-26-
<PAGE>
Notes, the Security Agreement, the Intellectual Property Assignments and each
other instrument, document or agreement evidencing, securing, guaranteeing or
relating in any way to any of the Loans or to any of the letters of credit
issued hereunder, all whether now existing or hereafter arising or entered into.
"Maximum Revolving Amount" - At any date as of which same is to be
determined, the amount by which (x) $3,500,000 exceeds (y) the sum of (i) all
then undrawn amounts of letters of credit issued by the Bank for the account of
the Borrower plus (ii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"MCRC" - The Massachusetts Capital Resource Company.
"Net Income" (or "Net Loss") - The book net income (or book net loss, as
the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, cash-equivalents, invoiced Receivables (less an allowance for bad debt
consistent with the Borrower's prior experience) and Unbilled Revenues (less an
allowance for uncollectable Unbilled Revenues, as reasonably determined by the
Borrower).
"Notes" - Collectively, the Revolving Note and the Term Notes.
"Obligations" - All Indebtedness, covenants, agreements, liabilities and
obligations, now existing or hereafter arising, made by the Borrower with or for
the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor thereto.
"Person" - An individual, corporation, company, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Premises" - As defined in Subsection 2.1(j) above.
"Qualified Receivables" - Only those Receivables of the Borrower which
arise out of bona fide sales made to customers of the Borrower (which customers
---- ----
are located in the United States and are unrelated to the Borrower) (Bull HN not
being deemed to be "related" to the Borrower for the purposes of this
definition) in the ordinary course of the Borrower's business and which remain
unpaid no more than 60 days past the respective invoice dates of such
Receivables, the payment of which is not in dispute. Unless the Bank in its
sole discretion otherwise determines with respect to any Receivable, a
Receivable which would otherwise be a Qualified Receivable shall be deemed not
to be a Qualified Receivable (i) if the Bank does not have a fully perfected
first priority security interest in such Receivable; (ii)
-27-
<PAGE>
if such Receivable is not free and clear of all adverse interests in favor of
any other Person; (iii) if such Receivable is subject to any deduction, off-set,
contra account, counterclaim or condition; (iv) if a field examination made by
the Bank fails to confirm that such Receivable exists and satisfies all of the
criteria set forth herein to be a Qualified Receivable; (v) if such Receivable
is not properly invoiced at the date of sale; (vi) if the customer or account
debtor has disputed liability or made any claim with respect to the Receivable
or the merchandise covered thereby or with respect to any other Receivable due
from said customer to the Borrower; (vii) if the customer or account debtor has
filed a petition for bankruptcy or any other application for relief under the
Bankruptcy Code or has effected an assignment for the benefit of creditors, or
if any petition or any other application for relief under the Bankruptcy Code
has been filed against said customer or account debtor, or if the customer or
account debtor has suspended business, become insolvent, ceased to pay its debts
as they become due, or had or suffered a receiver or trustee to be appointed for
any of its assets or affairs; (viii) if the customer or account debtor has
failed to pay other Receivables so that an aggregate of 25% of the total
Receivables owing to the Borrower by such customer or account debtor has been
outstanding for more than 60 days; (ix) if such Receivable is owed by the United
States government or any agency or department thereof (unless assigned to the
Bank under the Federal Assignment of Claims Act); or (x) if the Bank reasonably
believes that collection of such Receivable is insecure or that it may not be
paid by reason of financial inability to pay or otherwise, or that such
Receivable is not for any reason suitable for use as a basis for borrowing
hereunder. "Qualified Receivables" will in no event include any Eligible
Contract Payments.
"Qualifying Equipment" - Equipment (not including software, except that the
Borrower may include within "Qualifying Equipment" custom software which is not
prepackaged "shrink-wrapped" software with an invoiced cost not in excess of
$150,000 in the aggregate) purchased by the Borrower after June 30, 1996 (except
that for the purposes of the Initial Term Loan the relevant Qualified Equipment
may include equipment purchased prior to June 30, 1996 which is specifically
approved for this purpose by the Bank) for use in the Borrower's business which
meets all of the following criteria: (i) such equipment consists of one of the
items shown on the Equipment List heretofore delivered by the Borrower to the
Bank or has otherwise been approved by the Bank for use in supporting a Term
Loan, (ii) each item of such equipment has been delivered to and installed at
the Premises and has become fully operational, and (iii) the Borrower has paid
in full for each item of such equipment and holds title to same, free of all
interests and claims of any other Person (other than the security interest of
the Bank).
"Receivables" - All of the Borrower's present and future accounts, accounts
receivable and notes, drafts, acceptances and other instruments representing or
evidencing a right to payment for goods sold or for services rendered.
"Senior Debt" - All Indebtedness of the Borrower and/or its Subsidiaries
which does not constitute Subordinated Debt.
-28-
<PAGE>
"Subordinated Debt" - Any Indebtedness of the Borrower which is expressly
subordinated, pursuant to a subordination agreement in form and substance
satisfactory to the Bank, to all Indebtedness now or hereafter owed by the
Borrower to the Bank.
"Subsidiary" - Any corporation or other entity of which the Borrower and/or
any of its Subsidiaries, directly or indirectly, owns, or has the right to
control or direct the voting of, fifty (50%) percent or more of the outstanding
capital stock or other ownership interest having general voting power (under
ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any Person
(excluding (i) the total intangible assets of such Person and (ii) any assets
representing amounts due from any officer, employee or other affiliate of such
Person) minus the total liabilities of such Person. Total intangible assets
shall be deemed to include, but shall not be limited to, the excess of cost over
book value of acquired businesses accounted for by the purchase method,
formulae, trademarks, trade names, patents, patent rights and deferred expenses
(including, but not limited to, unamortized debt discount and expense,
organizational expense, capitalized software costs and experimental and
development expenses).
"Term Loans" - Collectively, the Initial Term Loan and each Additional Term
Loan.
"Term Notes" - Collectively, the Initial Term Note and the Additional Term
Note.
"Unbilled Revenues" - All amounts properly shown by the Borrower as
"unbilled revenues" on a balance sheet of the Borrower prepared in accordance
with generally accepted principles consistently with the balance sheet included
in the Borrower's audited financial statements as at December 31, 1995,
heretofore provided to the Bank.
Any defined term used in the plural preceded by the definite article shall
be taken to encompass all members of the relevant class. Any defined term used
in the singular preceded by "any" shall be taken to indicate any number of the
members of the relevant class.
7.2. Security Agreement. (a) The Borrower acknowledges and agrees that
------------------
the "Obligations" described in and secured by the Security Agreement, include,
without limitation, all of the obligations of the Borrower under the Revolving
Note, the Term Notes and/or this letter agreement.
(b) The Security Agreement is hereby modified to provide as follows:
(i) That the "Collateral" subject thereto includes, without
limitation and in addition to the Collateral described therein, all of the
Borrower's files, books and records (including, without limitation, all
electronically recorded data) all whether now owned or existing or hereafter
acquired, created or arising. The Borrower hereby grants to the Bank a security
interest in all such Collateral in order to secure the full and prompt payment
and performance of all of the Obligations.
-29-
<PAGE>
(ii) That, upon the occurrence of any Event of Default (as
defined in (S)5.1 of this letter agreement), the Bank may, at any time, without
further notice to the Borrower, notify account debtors that the Collateral has
been assigned to the Bank and that payments by such account debtors shall be
made directly to the Bank. At any time after the occurrence of an Event of
Default, the Bank may collect the Borrower's Receivables, or any of same,
directly from account debtors and may charge the collection costs and expenses
to the Borrower.
-30-
<PAGE>
This letter agreement is executed, as an instrument under seal, as of the
day and year first above written.
Very truly yours,
PERITUS SOFTWARE SERVICES, INC.
By /s/ Allen K. Deary
---------------------------------
Name:
Title:
Accepted and agreed:
FLEET NATIONAL BANK
By /s/ Thomas Davies
---------------------------
Its
By
---------------------------
Its
-31-
<PAGE>
DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which Borrower is qualified; Subsidiaries; joint
ventures; partnerships
Item 2.1(b) Stock ownership
Item 2.1(e) Litigation
Item 2.1(j) Collateral locations; record owner of Premises and other
locations
Item 2.1(k) Intellectual Property
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
Item 5.1(n) Present Insiders
-32-
<PAGE>
EXHIBIT 10.28
-------------
PROMISSORY NOTE
$3,500,000.00 Boston, Massachusetts
September 6, 1996
FOR VALUE RECEIVED, the undersigned Peritus Software Services, Inc., a
Massachusetts corporation (the "Borrower") hereby promises to pay to the order
of FLEET NATIONAL BANK (the Bank) the principal amount of Three Million Five
Hundred Thousand and 00/100 ($3,500,000.00) Dollars or such portion thereof as
may be advanced by the Bank pursuant to (S) 1.2 of that certain letter agreement
of even date herewith between the Bank and the Borrower (the "Letter Agreement")
and remains outstanding from time to time hereunder ("Principal"), with
interest, at the rate hereinafter set forth, on the daily balance of all unpaid
Principal, from the date hereof until payment in full of all Principal and
interest hereunder.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month, commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed) which shall at all times be equal to
the sum of (i) one-half of one (0.5%) percent plus (ii) the Prime Rate as in
effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law). A change in the aforesaid rate of interest
shall become effective on the same day on which any change in the Prime Rate is
effective. Overdue Principal and, to the extent permitted by law, overdue
interest shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the per
annum rate otherwise payable under this note (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means that rate of interest per annum
announced by the Bank from time to time as its prime rate, it being understood
that such rate is merely a reference rate, not necessarily the lowest, which
serves as the basis upon which effective rates of interest are calculated for
obligations making reference thereto. If the entire amount of any required
Principal and/or interest is not paid within ten (10) days after the same is
due, the Borrower shall pay to the Bank a late fee equal to five percent (5%) of
the required payment, provided that such late fee shall be reduced to three
percent (3%) of any required Principal and interest that is not paid within
fifteen (15) days of the date it is due if this note is secured by a mortgage on
an owner-occupied residence of 1 A units.
All outstanding Principal and all interest accrued thereon shall be due and
payable in full on the first to occur of: (i) an acceleration under (S)5.2 of
the Letter Agreement or (ii) June 30, 1997. The Borrower may at any time and
from time to time prepay all or any portion of said Principal, without premium
or penalty. Under
<PAGE>
certain circumstances set forth in the Letter Agreement, prepayments of
Principal may be required.
Payments of both Principal and interest shall be made, in immediately
available funds, at the office of the Bank located at 75 State Street, Boston,
Massachusetts 02109, or at such other address as the Bank may from time to time
designate.
The undersigned Borrower irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to this note or on the books of the Bank, at
or following the time of making any Revolving Loan (as defined in the Letter
Agreement) and of receiving any payment of Principal, an appropriate notation
reflecting such transaction and the then aggregate unpaid balance of Principal.
Failure of the Bank to make any such notation shall not, however, affect any
obligation of the Borrower hereunder or under the Letter Agreement. The unpaid
Principal amount of this note, as recorded by the Bank from time to time on such
schedule or on such books, shall constitute presumptive evidence of the
aggregate unpaid principal amount of the Revolving Loans.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred or paid by the Bank in
enforcing this note and any collateral or security therefor, all whether or not
litigation is commenced.
This note is the Revolving Note referred to in the Letter Agreement. This
note is secured by, and is entitled to the benefit of; the Security Agreement
(as defined in the Letter Agreement). This note is subject to prepayment as set
forth in the Letter Agreement. The maturity of this note may be accelerated
upon the occurrence of an Event of Default, as provided in the Letter Agreement.
-2-
<PAGE>
Executed, as an instrument under seal, as of the day and year first above
written.
CORPORATE PERITUS SOFTWARE SERVICES, INC.
SEAL
ATTEST:
/s/ John MacPhee By: /s/ Dominic K. Chan
- ---------------------------- ----------------------------
Treasurer Name: Dominic K. Chan
Title:
-3-
<PAGE>
EXHIBIT 10.29
-------------
PROMISSORY NOTE
---------------
$675,000.00 Boston, Massachusetts
September 6, 1996
FOR VALUE RECEIVED, the undersigned Peritus Software Services, Inc., a
Massachusetts corporation (the "Borrower") hereby promises to pay to the order
of FLEET NATIONAL BANK (the "Bank") the principal amount of Six Hundred Seventy-
Five Thousand and 00/100 ($675,000.00) Dollars ("Principal"), with interest, at
the rate hereinafter set forth, on the daily balance of all unpaid Principal,
from the date hereof until payment in kill of all Principal and interest
hereunder. As used herein, "Letter Agreement" means that certain letter
agreement of even date herewith between the Bank and the Borrower.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month, commencing on October 1, 1996 and
continuing on the first day of each month thereafter and on the date of payment
of this note in kill, at a fluctuating rate per annum (computed on the basis of
a year of three hundred sixty (360) days for the actual number of days elapsed)
which shall at all times be equal to the sum of (i) one (1%) percent per annum
plus (ii) the Prime Rate, as in effect from time to time (but in no event in
excess of the maximum rate permitted by then applicable law). A change in the
aforesaid rate of interest will become effective on the same day on which any
change in the Prime Rate is effective. Overdue principal and, to the extent
permitted by law, overdue interest shall bear interest at a fluctuating rate per
annum which at all times shall be equal to the sum of (i) two (2%) percent per
annum plus (ii) the per annum rate otherwise payable under this note (but in no
event in excess of the maximum rate permitted by then applicable law),
compounded monthly and payable on demand. As used herein, "Prime Rate" means
that rate of interest per annum announced by the Bank from time to time as its
prime rate, it being understood that such rate is merely a reference rate, not
necessarily the lowest, which serves as the basis upon which effective rates of
interest are calculated for obligations making reference thereto. If the entire
amount of any required Principal and/or interest is not paid within ten (10)
days after the same is due, the Borrower shall pay to the Bank a late fee equal
to five percent (5%) of the required payment, provided that such late fee shall
be reduced to three percent (3%) of any required Principal and interest that is
not paid within fifteen (15) days of the date it is due if this note is secured
by a mortgage on an owner-occupied residence of 14 units.
Principal shall be repaid by the Borrower to the Bank in 35 equal
consecutive monthly installments (each in the amount of $18,750), such
installments to commence October 1, 1996 and to continue thereafter on the first
day of each month through and including August 1, 1999, plus a 36th and final
installment on September 1, 1999 in an amount equal to all then outstanding
Principal and all interest accrued but unpaid thereon.
<PAGE>
The Borrower may at any time and from time to time, without premium or
penalty, prepay all or any portion of the Principal; provided that each such
Principal prepayment shall be accompanied by payment of all interest on this
note accrued but unpaid to the date of payment. Any partial prepayment of
Principal will be applied against Principal installments in inverse order of
normal maturity.
Payments of both Principal and interest shall be made, in immediately
available funds, at the office of the Bank located at 75 State Street, Boston,
Massachusetts 02109, or at such other address as the Bank may from time to time
designate.
The undersigned Borrower irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to this note or on the books of the Bank, at
or following the time of receiving any payment of Principal, an appropriate
notation reflecting such transaction and the then unpaid balance of Principal.
Failure of the Bank to make any such notation shall not, however, affect any
obligation of the Borrower hereunder or under the Letter Agreement. The unpaid
Principal amount of this note, as recorded by the Bank from time to time on such
schedule or on such books, shall constitute presumptive evidence of the
outstanding principal amount of the Initial Term Loan (as defined in the Letter
Agreement).
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred or paid by the Bank in
enforcing this note and any collateral or security therefor, all whether or not
litigation is commenced.
This note is the Initial Term Note referred to in, and is entitled to the
benefits of, the Letter Agreement. This note is secured by the Security
Agreement (as defined in the Letter Agreement). This note is subject to
prepayment as set forth in the Letter Agreement. The maturity of this note may
be accelerated upon the occurrence of an Event of Default, as provided in the
Letter Agreement.
-2-
<PAGE>
Executed, as an instrument under seal, as of the day and year first above
written.
CORPORATE SEAL PERITUS SOFTWARE
ATTEST: SERVICES, INC.
/s/ John MacPhee By: /s/ Dominic K. Chan
- ------------------------ -------------------------
Treasurer Name: Dominic K. Chan
Title:
-3-
<PAGE>
EXHIBIT 10.30
-------------
PROMISSORY NOTE
---------------
$825,000.00 Boston, Massachusetts
September 6, 1996
FOR VALUE RECEIVED, the undersigned Peritus Software Services, Inc., a
Massachusetts corporation (the "Borrower") hereby promises to pay to the order
of FLEET NATIONAL BANK (the "Bank") the principal amount of Eight Hundred
Twenty-Five Thousand and 00/100 ($825,000.00) Dollars or such portion thereof as
may be advanced by the Bank as one or more "Additional Term Loans" pursuant to
(S) 1.4 of the below-described Letter Agreement and remains outstanding from
time to time hereunder ("Principal"), with interest, at the rate hereinafter set
forth, on the daily balance of all unpaid Principal, from the date hereof until
payment in full of all Principal and interest hereunder. As used herein, "Letter
Agreement" means that certain letter agreement of even date herewith between the
Bank and the Borrower.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month, commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed) which shall at all times be equal to
the sum of (i) one (1 %) percent per annum plus (ii) the Prime Rate, as in
effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law). A change in the aforesaid rate of interest
will become effective on the same day on which any change in the Prime Rate is
effective. Overdue principal and, to the extent permitted by law, overdue
interest shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the per
annum rate otherwise payable under this note (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means that rate of interest per annum
announced by the Bank from time to time as its prime rate, it being understood
that such rate is merely a reference rate, not necessarily the lowest, which
serves as the basis upon which effective rates of interest are calculated for
obligations making reference thereto. If the entire amount of any required
Principal and/or interest is not paid within ten (10) days after the same is
due, the Borrower shall pay to the Bank a late fee equal to five percent (5%) of
the required payment, provided that such late fee shall be reduced to three
percent (3%) of any required Principal and interest that is not paid within
fifteen (15) days of the date it is due if this note is secured by a mortgage on
an owner-occupied residence of 1-4 units.
Principal shall be repaid by the Borrower to the Bank in 35 equal
consecutive monthly installments (each in an amount equal to 1/36th of the
aggregate principal amounts of the Additional Term Loans, as defined in the
Letter Agreement, outstanding at close of business on June 30, 1997), such
installments to commence
<PAGE>
July 1, 1997 and to continue thereafter on the first day of each month through
and including May 1, 2000, plus a 36th and final installment on June 1, 2000 in
an amount equal to all then outstanding Principal and all interest accrued but
unpaid thereon.
The Borrower may at any time and from time to time, without premium or
penalty, prepay all or any portion of the Principal; provided that each such
Principal prepayment shall be accompanied by payment of all interest on this
note accrued but unpaid to the date of payment. Any partial prepayment of
Principal will be applied against Principal installments in inverse order of
normal maturity.
Payments of both Principal and interest shall be made, in immediately
available funds, at the office of the Bank located at 75 State Street, Boston,
Massachusetts 02109, or at such other address as the Bank may from time to time
designate.
The undersigned Borrower irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to this note or on the books of the Bank, at
or following the time of making any Additional Term Loan (as defined in the
Letter Agreement) receiving any payment of Principal, an appropriate notation
reflecting such transaction and the then unpaid balance of Principal. Failure of
the Bank to make any such notation shall not, however, affect any obligation of
the Borrower hereunder or under the Letter Agreement. The unpaid Principal
amount of this note, as recorded by the Bank from time to time on such schedule
or on such books, shall constitute presumptive evidence of the aggregate
outstanding principal amount of the Additional Term Loans.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred or paid by the Bank in
enforcing this note and any collateral or security therefor, all whether or not
litigation is commenced.
This note is the Additional Term Note referred to in, and is entitled to
the benefits of, the Letter Agreement This note is secured by the Security
Agreement (as defined in the Letter Agreement). This note is subject to
prepayment as set forth in the Letter Agreement. The maturity of this note may
be accelerated upon the occurrence of an Event of Default, as provided in the
Letter Agreement.
-2-
<PAGE>
Executed, as an instrument under seal, as of the day and year first above
written.
CORPORATE SEAL PERITUS SOFTWARE
ATTEST: SERVICES, INC.
/s/ John MacPhee By: /s/ Dominic K. Chan
- ---------------------------- ---------------------------
Treasurer Name: Dominic K. Chan
Title:
-3-
<PAGE>
EXHIBIT 10.31
-------------
Inventory, Accounts Receivable
and Intangibles Security Agreement
(SHORT FORM)
FLEET BANK
- --------------------------------------------------------------------------------
September 6, 1996
To secure the due payment and performance of all of the liabilities and
obligations hereunder of the undersigned, herein called "Borrower," to Fleet
National Bank hereinafter called "Bank," and all other liabilities and
obligations of Borrower to Bank of every name and nature whatsoever, direct or
indirect, absolute or contingent, now existing or hereafter arising or acquired,
including, without limitation, the due payment and performance of all
liabilities and obligations under any and all notes, all hereinafter called
"Obligations," the Borrower hereby grants to Bank a continuing security interest
in:
(a) All accounts, contracts, contract rights, notes, bills, drafts,
acceptances, general intangibles, choses in action, and all other debts,
obligations and liabilities, in whatever form, owing to Borrower from any
person, firm or corporation, or any other legal entity, whether now existing or
hereafter arising, now or hereafter received by or belonging or owing to
Borrower, for goods sold by it or for services rendered by it or however
otherwise same may have been established or created, all guarantees and
securities therefor, all right, title and interest of Borrower in the
merchandise or services which gave rise thereto, including the rights of
reclamation and stoppage in transit, all rights of an unpaid seller of
merchandise or services, and in the proceeds thereof, including, without
limitation, all proceeds of credit, fire or other insurance, and any tax
refunds.
(b) All goods, merchandise, raw materials, goods and work in process,
finished goods and other tangible personal property, now owned or hereafter
acquired and held for sale or lease, or furnished or to be furnished under
contract of service, or used or consumed in Borrower's business and in the
products and proceeds thereof, including, without limitation, all proceeds of
fire or other insurance. This portion of the collateral being sometimes referred
to as "Inventory."
All of the accounts and other property as set forth in (a) above and
Inventory as set forth in (b) above and the other property described in the
Rider attached hereto are hereinafter referred to collectively as "Collateral."
The Collateral and all proceeds and products thereof shall be security for
all Obligations. Until all Obligations have been fully satisfied, Bank's
security interest in the Collateral and all proceeds and products thereof, shall
continue in full force and effect and Bank will at all times after the
occurrence and during the continuance of an Event of Default (as defined in the
Letter Agreement of even date between Bank and Borrower) have the right to take
physical possession of the Inventory and to
<PAGE>
maintain such possession on Borrower's premises or to remove the Inventory or
any part thereof to such other places as Bank may desire. If Bank exercises
Bank's right to take possession of the Inventory, Borrower shall, upon Bank's
demand, assemble the Inventory and make it available to Bank at a place
reasonably convenient to Bank.
If Borrower shall fail to pay, when due, any of the Obligations or shall
fail to observe or perform any of the provisions of this Agreement or any other
agreement now or hereafter entered into between Bank and Borrower, Borrower
shall be in default hereunder. In the event of such default all Obligations of
Borrower to Bank shall, at the option of the Bank, and without notice to or
demand upon Borrower become and be immediately due and payable and thereupon
Bank may exercise any and all rights and remedies of a secured party available
under the Uniform Commercial Code and all other applicable law.
Borrower represents, warrants and covenants that all Inventory is and will
be owned by Borrower, free of all other liens and encumbrances, and shall be
kept by Borrower at 304 Concord Road, Billerica, MA 01821* and that Borrower
shall not (without Bank's prior written approval) remove the Inventory therefrom
except for the purposes of sale in the ordinary course of business.
Except for sales made in the ordinary course of business, Borrower shall
not sell, encumber, grant a security interest in or dispose of or permit the
sale, encumbrance or disposal of any Collateral without Bank's prior written
consent. A sale in the ordinary course of business shall not include a transfer
in total or partial satisfaction of a debt.
Borrower shall perform any and all steps requested by Bank to perfect
Bank's security interest in the Collateral, such as leasing warehouses to Bank
or its designee, placing and maintaining signs, appointing custodians, executing
and filing financing or continuation statements in form and substance
satisfactory to Bank. If any Inventory is in the possession or control of any of
Borrower's agents or processors, Borrower shall notify such agents or processors
of Bank's interest therein, and upon request instruct them to hold all such
Inventory for Bank's account and subject to Bank's instructions. A physical
listing of all Inventory, wherever located, shall be taken by Borrower whenever
requested by Bank, and a copy of each such physical listing shall be supplied to
Bank. Bank may examine and inspect the Inventory at any time.
Borrower agrees to keep all the Inventory insured with coverage and amounts
not less than that usually carried by one engaged in a like business and in any
event not less than that required by Bank with loss payable to the Bank and
Borrower, as their interests may appear, hereby appointing Bank as attorney for
Borrower in obtaining, adjusting, settling and cancelling such insurance and
endorsing any drafts. All premiums on such insurance shall be paid by Borrower
and the policies delivered to Bank. If Borrower fails to do so, Bank may procure
such insurance and charge the cost to Borrower's loan account. As further
assurance for the payment and
<PAGE>
performance of the Obligations, Borrower hereby assigns to Bank all sums
including returned or unearned premiums, which may become payable under any
policy of insurance on the Collateral and Borrower hereby directs each insurance
company issuing any such policy to make payment of such sums directly to Bank.
If in the event of the sale of the Collateral the proceeds thereof are
insufficient to pay all amounts to which Bank is legally entitled, Borrower will
be liable for the deficiency, together with interest thereon and the reasonable
fees of any attorney employed by Bank to collect such deficiency.
Bank shall have the right to enforce any remedies hereunder alternatively,
successively or concurrently. A waiver of any default of Borrower shall not be a
waiver of any subsequent, similar or other default. No delay in the exercise of
any of Bank's rights or remedies hereunder shall constitute a waiver of such
right or remedy or of any other right or remedy.
This Agreement shall not be construed to be in limitation of or in
substitution for any other grant of security interest from Borrower to Bank made
prior to or contemporaneously herewith, and no other such grant of a security
interest made subsequent to or contemporaneously herewith shall be construed to
be in limitation of or in substitution for this Agreement unless expressly and
specifically provided therein.
This Agreement shall take effect as a sealed instrument, shall be governed
by and construed according to the laws of the Commonwealth of Massachusetts,
shall be binding upon the heirs, executors, administrators, successors and
assigns of Borrower and shall inure to the benefit of the successors and assigns
of Bank.
*See attached Rider.
Witnessed by: PERITUS SOFTWARE SERVICES, INC.
-------------------------------
BORROWER
/s/ illegible By: /s/ Allen K. Deary
- ------------------------------ ----------------------------
FLEET NATIONAL BANK Its TITLE
By: /s/ Thomas Davies Address: 304 Concord Road
------------------------- ----------------------
Its NUMBER AND STREET
Billerica, MA 01821
----------------------
CITY, COUNTY AND STATE
<PAGE>
RIDER TO INVENTORY, ACCOUNTS RECEIVABLE
AND INTANGIBLES SECURITY AGREEMENT
FROM PERITUS SOFTWARE SERVICES, INC.
TO FLEET NATIONAL BANK
For the purposes of the foregoing Inventory, Accounts Receivable and
Intangibles Security Agreement (the "Security Agreement"), the "Collateral" will
be deemed to include all of the following (collectively, the "Intangibles"), all
whether now existing and owned by the Borrower or hereafter arising or acquired:
all of the Borrower's know-how, trade secrets, copyrights, patents, trade names,
trademarks, service marks and licenses and the goodwill of the business
associated with the foregoing, including, without limitation, the patents and
trademarks described on Exhibit A hereto and the goodwill of the business
associated therewith. The Borrower hereby grants to the Bank a security interest
in the Intangibles to secure payment and performance of the Obligations. Except
as shown on Exhibit A hereto, none of the Intangibles owned by the Borrower is
the subject of any state or federal registration. The Borrower agrees that it
will not dispose of any of the Intangibles or any interest therein or grant a
security interest in any of the Intangibles (other than to the Bank) nor suffer
or permit to exist any other encumbrance thereon without , in each instance, the
prior written consent of the Bank. The Borrower warrants that it has
unencumbered title to or right to use the Intangibles and full right and
authority to grant to the Bank the within security interest in the Intangibles.
The Borrower agrees to defend its title to the Intangibles and to take all steps
reasonably necessary to preserve its title to the Intangibles and ability to use
same, including defense of any claims of infringement and action against any
infringers. Upon the occurrence of any Event of Default (as defined in the
Letter Agreement of even date herewith between the Bank and the Borrower), the
Borrower will assemble and make available to the Bank all books, records and
data, whether in written form or electronically recorded representing any of the
Intangibles (including, without limitation, all source codes for the Borrower's
software).
Notwithstanding the provisions of the fifth grammatical paragraph of the
Security Agreement, the Borrower may keep Inventory at the locations described
in Item 2.1(j) of the Disclosure Schedule attached to the aforesaid Letter
Agreement in addition to its above-described Billerica, Massachusetts location.
<PAGE>
EXHIBIT A
---------
TRADEMARKS, PATENTS AND COPYRIGHTS
PATENTS
-------
Registered Patents
- ------------------
None.
Patent Applications
- -------------------
Title Application Serial No. Filing Date
----- ---------------------- -----------
Process and Tool for 08/550,869 October 31, 1995
Scalable Automated
Data Field Replacement
Code Analyzer 60/007,134 October 31, 1995
(Provisional)
Code Analyzer 08/555,932 November 13, 1995
TRADEMARKS
----------
Marks with Federal Registration
- -------------------------------
Marks Registration No./Date
----- ---------------------
PERITUS (SKILLED) 1,968,718/April 16, 1996
Marks with Pending Applications
- -------------------------------
Marks Serial No./Filing Date
----- ----------------------
AUTOENHANCER/2000 75-021,443/November 17, 1995
AUTOMATE:2000 75-017,923/November 13, 1995
COPYRIGHTS
----------
Registration
------------
Work Author Owner Number Registered
---- ------ ----- ------ ----------
None.
<PAGE>
EXHIBIT 10.32
Supplementary Security Agreement
Security Interest in Goods and Chattels
September 6, 1996
To: Fleet National Bank
This is a supplement to our Inventory, Accounts Receivable and Intangibles
Security Agreement (the "Agreement") with you bearing the effective date of even
date herewith. It is hereby incorporated into said Agreement, shall have a term
concurrent therewith and is a part thereof.
1. In addition to your other security, we hereby grant you a continuing
security interest in all machinery, equipment and other goods (as defined in
Article 9 of the Uniform Commerical Code) whether now owned or hereafter
acquired by us and wherever located, all replacements and substitutions therefor
or accessions thereto and all proceeds thereof (all herein referred to
collectively as "Collateral") and including, also without limitation, all
proceeds of fire or other insurance covering the aforesaid property.
2. The Collateral shall be security for all Obligations (as defined in
the Agreement). Until all Obligations have been fully satisfied, your security
interest in the Collateral shall continue in full force and effect and you will
at all times after the occurrence of any Event of Default under the letter
agreement described below have the right to the physical possession of the
Collateral and to maintain such possession on our premises or to remove the
Collateral or any part thereof to such other places you may desire. If you
exercise your right to take possession of the Collateral, we shall, upon your
demand, assemble the Collateral and make it available to you at a place
reasonably convenient to you. In addition, with respect to all Collateral, you
shall have all of the rights and remedies set forth in the Agreement and all of
the rights and remedies provided in the Uniform Commercial Code.
3. We represent, warrant the covenant that (a) the Collateral is in our
possession at 304 Concord Road, Billerica, County of Middlesex, of Commonwealth
of Massachusetts; (b) we are the lawful owners of the Collateral and have the
sole right and lawful authority to deliver this instrument; (c) the Collateral
and every part thereof is and will be free and clear of all security interest,
liens and encumbrances of every kind, nature and description except as follows:
purchase money security interest and other exceptions permitted by letter
agreement of even date herewith between the Borrower and the Bank, and we will
warrant and defend the Collateral
________________________
* Except that Collateral may also be located as described in Item 2.1(j)
of the Disclosure Schedule attached to the aforesaid Letter Agreement.
<PAGE>
against the claims and demands of all persons; (d) we will keep the Collateral
free and clear of all attachments, levies, taxes, liens, security interests and
encumbrances of every kind and nature, except as listed above, and we will at
our own cost and expense, keep the Collateral in a good state of repair and will
not waste or destroy the same or any part thereof except for items disposed of
in the ordinary course to the extent expressly permitted by the aforesaid letter
agreement and will not be negligent in the care and use thereof; (e) we will not
without your prior written consent, sell, assign, mortgage, lease or otherwise
dispose of the Collateral;** (f) we will insure the Collateral in your name
against loss or damage by fire, theft, burglary, pilferage, loss in transit and
such other hazards as you shall specify; in amounts and under policies by
insurers acceptable to you, and if we fail to do so, you may procure such
insurance and charge the cost to our loan account; (g) as further assurance for
the payment and performance of the Obligations, we hereby assign to you all
sums, including returned or unearned premiums, which may become payable under
any policy of insurance on the Collateral and we hereby direct each insurance
company issuing any such policy to make payment of such sums directly to you;
(h) except for items disposed of in the ordinary course to the extent expressly
permitted by the aforesaid letter agreement, we will not remove the Collateral
from its present location without your prior written consent and we will at all
times, allow you or your representatives free access to and right of inspection
of the Collateral; (i) we will comply with the terms and conditions of any
leases covering the premises wherein the Collateral is located and any orders,
ordinances, laws or statutes of any city, state or other governmental department
having jurisdiction with respect to such premises or the conduct of business
thereon, and, when requested by you, we will execute any written instruments and
do any other acts necessary to effectuate more fully the purposes and provisions
of the Agreement; (j) we will indemnify and save you harmless from all loss,
cost, damage, liability or expenses including attorneys' fees that you may
sustain or incur by reason of defending or protecting your security interest or
the priority thereof or enforcing the Obligations, or in the prosecution or
defense of any action or proceeding concerning any matter growing out of or
connected with the Agreement, the Obligations or the Collateral.
4. You may, at your option, discharge any taxes, liens, security interest
or other encumbrances at any time levied or placed on the Collateral and not
permitted by the letter agreement and you may pay for the maintenance and
preservation of the
_______________________
** Except for obsolete or worn out items disposed of in the ordinary
course and except for liens permitted by the aforesaid letter agreement.
-2-
<PAGE>
Collateral and we will reimburse you on demand for any payment made or any
expense incurred by you pursuant to the foregoing authority, with interest at
the rate provided in the Agreement.
Very truly yours,
PERITUS SOFTWARE SERVICES, INC.
-------------------------------
Borrower
Witnessed by:
By:/s/ Allen K. Deary
- -------------------------------- -------------------------------------
Accepted at Boston, Massachusetts ______
FLEET NATIONAL BANK
By:/s/ Thomas Davies
-------------------------------------
Its:
-3-
<PAGE>
ITEM 5.1(n)
50% or Greater Ownership Allowed
Chan, Dominic & Marsha
Greylock Limited Equity Partnership
Matrix Partners IV., L.P.
Bull NH Information Systems, Inc.
IBM
CSC
<PAGE>
EXHIBIT 10.33
-------------
SECURITY AGREEMENT (TRADEMARKS)
-------------------------------
WHEREAS, PERITUS SOFTWARE SERVICES, INC, a Massachusetts corporation, with
a principal place of business at 304 Concord Road, Billerica, MA 01821 (the
"Company") and FLEET NATIONAL BANK, with a place of business at 75 State Street,
Boston, Massachusetts 02109 (the "Bank") have entered into an Inventory,
Accounts Receivable and Intangibles Security Agreement dated as of September 6,
1996 (the "Security Agreement") and are also parties to a related letter
agreement (the "Letter Agreement") between the Bank and the Company; and
WHEREAS, the Company is the owner and user of the trademarks listed on
Schedule A hereto and identified in said Security Agreement (the "Trademarks");
and
WHEREAS, among the security interests granted by the Company to the Bank
pursuant to the Security Agreement is a security interest in the Trademarks
listed on Schedule A hereto, together with the goodwill of the business
associated with and symbolized by such Trademarks; and
WHEREAS, the parties to the Security Agreement contemplate and intend that,
if an Event of Default (as defined in the Letter Agreement) shall occur and be
continuing, the Bank shall have all rights of the Company in and to the
Trademarks and the goodwill of the business of the Company associated with and
symbolized by the Trademarks as may be necessary or proper in order to enable
the Bank, as foreclosing secured party, to continue such business of the Company
or, following such foreclosure, to transfer to a purchaser all such rights as
may be necessary or proper to enable such purchaser to continue such business of
the Company;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties reconfirm the terms of
the Security Agreement, as if set forth fully herein, and acknowledge that the
Bank has a security interest in the Trademarks listed on Schedule A hereto,
together with the goodwill of the business associated with and symbolized by
such Trademarks; as security for the Obligations (as defined in the Security
Agreement), the Company hereby collaterally assigns to the Bank, and grants a
security interest to the Bank in and to, all of the Company's right, title and
interest in and to said Trademark and the goodwill of the business associated
therewith; the Company agrees that it will not sell or assign any of the
Trademarks without the prior written consent of the Bank; and the Company and
the Bank request that the Commissioner of Patents and Trademarks record this
document with respect to the Trademarks.
The Company hereby appoints the Bank as the Company's attorney-in-fact
(with full power of substitution and resubstitution) with the power and
authority, after the occurrence and during the continuance of any Event of
Default (as defined in the Letter Agreement), to execute and deliver, in the
name and on behalf of the
<PAGE>
Company, and to cause the recording of all such further assignments and other
instruments as the Bank may deem necessary or desirable in order to carry out
the intent of the Security Agreement and this Security Agreement (Trademarks).
The Company agrees that all third parties may conclusively rely on any such
further assignment or other instrument, so executed, delivered and recorded by
the Bank (or the Bank's designee in accordance with the terms hereof) and on the
statements made therein.
PERITUS SOFTWARE SERVICES, INC. FLEET NATIONAL BANK
By: /s/ Allen K. Deary By: /s/ Thomas Davies
--------------------------- ----------------------------
Name: Name:
Title: Title:
COMMONWEALTH OF MASSACHUSETTS )
COUNTY OF )ss.
Then personally appeared before me the above-named , the
----------------
of Peritus Software, Inc., and stated that he/she executed the
- ---------------
foregoing instrument under the authority of said corporation's Board of
Directors and acknowledged the foregoing instrument to be the free act and deed
of said corporation.
WITNESS my hand and seal this day of September, 1996.
-----
---------------------------------
Notary Public
My commission expires:
-2-
<PAGE>
SCHEDULE A
TO
SECURITY AGREEMENT (TRADEMARKS)
Marks with Federal Registration
- -------------------------------
Marks Registration No./Date
- ----- ---------------------
PERITUS (SKILLED) 1,968,718/April 16,1996
Marks with Pending Applications
- -------------------------------
Marks Serial No./Filing Date
- ----- ----------------------
AUTOENHANCER/2000 75-021,443/November 17, 1995
AUTOMATE: 2000 75-017,923/November 13, 1995
-3-
<PAGE>
EXHIBIT 10.34
-------------
SECURITY AGREEMENT (PATENTS)
----------------------------
WHEREAS, PERITUS SOFTWARE SERVICES, INC., a Massachusetts corporation, with
a principal place of business at 304 Concord Road, Billerica, MA 01821 (the
"Company") and FLEET NATIONAL BANK, with a place of business at 75 State Street,
Boston, Massachusetts 02109 (the "Bank") have entered into an Inventory,
Accounts Receivable and Intangibles Security Agreement dated as of September 6,
1996 (the "Security Agreement") and are also parties to a related letter
agreement (the "Letter Agreement") between the Bank and the Company; and
WHEREAS, the Company is the owner and user of the United States Patents and
Patent Applications listed on Schedule A hereto and identified in said Security
Agreement (collectively, the "U.S. Patents"); and
WHEREAS, among the security interests granted by the Company to the Bank
pursuant to the Security Agreement is a security interest in the U.S. Patents
listed on Schedule A hereto; and
WHEREAS, the parties to the Security Agreement contemplate and intend that,
if an Event of Default (as defined in the Letter Agreement) shall occur and be
continuing, the Bank shall have all rights of a foreclosing secured party in and
to the U.S. Patents and any proceeds thereof, including, without limitation, the
right, following such foreclosure, to transfer to a purchaser all of the
Company's right, title and interest in and to the U.S. Patents;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties reconfirm the terms of
the Security Agreement, as if set forth fully herein, and acknowledge that the
Bank has a security interest in the U.S. Patents listed on Schedule A hereto; as
security for the Obligations (as defined in the Security Agreement) the Company
hereby collaterally assigns to the Bank, and grants a security interest to the
Bank in and to, all of the Company's right, title and interest in and to said
U.S. Patents; the Company agrees that it will not sell or assign any of the U.S.
Patents without the prior written consent of the Bank; and the Company and the
Bank request that the Commissioner of Patents and Trademarks record this
document with respect to the U.S. Patents.
The Company hereby appoints the Bank as the Company's attorney-in-fact
(with full power of substitution and resubstitution) with the power and
authority, after the occurrence and during the continuance of any Event of
Default (as defined in the Letter Agreement), to execute and deliver, in the
name and on behalf of the Company, and to cause the recording of all such
further assignments and other instruments as the Bank may deem necessary or
desirable in order to carry out the intent of the Security Agreement and this
Security Agreement (Patents). The Company agrees that all third parties may
conclusively rely on any such further
<PAGE>
assignment or other instrument, so executed, delivered and recorded by the Bank
(or the Bank's designee in accordance with the terms hereof) and on the
statements made therein.
PERITUS SOFTWARE SERVICES, INC. FLEET NATIONAL BANK
By: /s/ Allen K. Deary By: /s/ Thomas Davies
------------------------------- -----------------------------
Name: Name:
Title: Title:
COMMONWEALTH OF MASSACHUSETTS )
)ss.
COUNTY OF )
Then personally appeared before me the above-named , the
--------
of Peritus Software Services, Inc., and stated that he/she
- --------------
executed the foregoing instrument under the authority of said corporation's
Board of Directors and acknowledged the foregoing instrument to be the free act
and deed of said corporation.
WITNESS my hand and seal this day of September, 1996.
-----
---------------------------------
Notary Public
commission expires:
-2-
<PAGE>
SCHEDULE A
TO
SECURITY AGREEMENT (PATENTS)
Patents with United States Registration
- ---------------------------------------
Patent Description Reg. No. Issue Date
------------------ -------- ----------
None
Patent Applications
- -------------------
Description Serial No. Filing Date
----------- ---------- -----------
Process and Tool for Scalable 08/550,869 October 31, 1995
Automated Data Field
Replacement
Code Analyzer 60/007,134 October 31, 1995
(Provisonal)
Code Analyzer 08/555,932 November 13, 1995
-3-
<PAGE>
EXHIBIT 10.35
-------------
SUBORDINATION AGREEMENT
This Subordination Agreement is made as of the 6th day of September, 1996
by and between Massachusetts Capital Resource Company (the "Subordinated
Creditor") and Fleet National Bank (the "Bank").
WHEREAS, the Bank is about to enter into certain financing arrangements
with Peritus Software Services, Inc., a Massachusetts corporation (the
"Borrower"), pursuant to which the Bank may make loans and other extensions of
credit to the Borrower on the terms and conditions described in a letter
agreement dated September 6, 1996 between the Bank and the Borrower (as same may
be from time to time amended, the "Loan Agreement"); and
WHEREAS, the Subordinated Creditor is the holder of a $1,000,000 principal
amount promissory note due 2002 (the "Subordinated Note") issued by the Borrower
and payable to the Subordinated Creditor as provided in that certain Note and
Warrant Purchase Agreement (the "Subordinated Note Agreement") dated as of May
30, 1995 between the Borrower and the Subordinated Creditor (the obligations and
indebtedness represented by said Subordinated Note and/or said Subordinated Note
Agreement, as same may be from time to time amended or extended, including,
without limitation, all principal, interest, fees, charges and the purchase
price due upon the exercise of any put rights, being hereinafter referred to as
the "Subordinated Debt"); and
WHEREAS, the Bank requires that the Subordinated Creditor enter into this
Subordination Agreement as a condition precedent to the Bank's loans to the
Borrower;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby act and
agree as follows:
1. The Subordinated Creditor agrees that the payment of all of the
Subordinated Debt is expressly subordinated, in the manner hereinafter set
forth, in right of payment to the prior payment and satisfaction in full of the
Senior Debt. As used herein, "Senior Debt" means (i) the principal, interest,
fees and other sums payable from time to time to the Bank under the Loan
Agreement, the Revolving Note (as defined in the Loan Agreement) and/or the Term
Notes (as defined in the Loan Agreement), each as same may be from time to time
amended and (ii) any and all other indebtedness or liabilities of the Borrower
to the Bank resulting from any other or additional credit hereafter extended by
the Bank to or for the benefit of the Borrower; provided, however, that the
principal amount of the loans giving rise to such Senior Debt shall not exceed
$5,000,000 in the aggregate. Interest, fees and charges constituting Senior
Debt will be calculated as provided for in the notes and
<PAGE>
other instruments governing same and without regard to whether or not same are
allowable in any bankruptcy or insolvency proceedings involving the Borrower.
2. (a) So long as any part of the Senior Debt shall be unpaid or any
facility for loans or other extensions of credit by the Bank to or for the
benefit of the Borrower shall remain in effect, no payment of or with respect to
any Subordinated Debt shall be made at any time by the Borrower or received by
the Subordinated Creditor without the prior written consent of the Bank, except
as expressly provided below in this Section 2. If the Subordinated Creditor
receives any payment to which the Subordinated Creditor shall not be entitled
under this Section 2, the Subordinated Creditor will hold any such payment in
trust for the benefit of the Bank and, upon demand, will forthwith remit same to
the Bank.
(b) Notwithstanding the provisions of Subsection 2(a) of this
Subordination Agreement, at any time when neither a Payment Default Standstill
Period nor a Covenant Default Standstill Period is in effect, the Borrower may
pay, and the Subordinated Creditor may receive and retain for its own account,
current payments of interest on the Subordinated Note at the rate provided for
in the Subordinated Note, any fees and charges provided for in the Subordinated
Note Agreement and mandatory redemption payments as scheduled pursuant to
Section 1.05(a) of the Subordinated Note Agreement. Further, at any time when
only a Covenant Default Standstill Period (and not a Payment Default Standstill
Period) is in effect, the Borrower may pay, and the Subordinated Creditor may
receive and retain for its own account, current payments of interest on the
Subordinated Note at the rate provided for in the Subordinated Note.
(c) As used in this Section 2, a "Payment Default Standstill Period" will
be deemed to be in effect:
(i) during any period commencing with the date on which the Borrower
fails to pay any principal of and/or interest then due on the Loans (as
defined in the Loan Agreement) (such failure to pay being hereinafter
referred to as a "Payment Default") and ending on the 90th day after the
date of such Payment Default (subject to extension as hereinafter
provided), unless judicial proceedings regarding collection of any
defaulted payments on the Senior Debt shall have been commenced prior to
such 90th day and/or other proceedings (judicial or non-judicial) relating
to realization on collateral shall have been commenced prior to such 90th
day; or
(ii) during any period commencing with the commencement of any
judicial proceeding and/or other proceedings (judicial or non-judicial) as
described in clause (i) above and ending only upon payment in full of the
Senior Debt in cash.
-2-
<PAGE>
If at any time during a Payment Default Standstill Period existing pursuant to
clause (i) above, the Bank shall be restrained, prohibited or ordered by a court
of competent jurisdiction or governmental agency asserting jurisdiction (or
prohibited or prevented by any relevant law, rule or statute) from accelerating
the Senior Debt or any of same or from commencing the judicial or non-judicial
proceedings described in clause (i) above, the Payment Default Standstill Period
shall be extended until the later of: (A) the date upon which it would have
otherwise expired pursuant to the terms of clauses (i) and (ii) above, or (B)
the 30th day following the last day on which the Bank is so restrained,
prohibited, ordered or prevented. If any Payment Default occurs, the Bank will
give the Subordinated Creditor prompt written notice thereof.
(d) As used in this Section 2, a "Covenant Default Standstill Period" will
be deemed to be in effect:
(i) during any period commencing with the giving of any Covenant
Default Standstill Notice by the Bank to the Subordinated Creditor and
ending on the 90th day thereafter (subject to extension as hereinafter
provided), unless (A) the Bank shall have accelerated any of the Senior
Debt prior to such 90th day (in which case a Payment Default will be deemed
to have resulted from such acceleration and a Payment Default Standstill
Period will be deemed to have occurred, commencing on the date of such
Payment Default and terminating as provided in Subsection 2(c) above) or
(B) judicial proceedings regarding enforcement of rights of the Bank shall
have been commenced prior to such 90th day and/or other proceedings
(judicial or non-judicial) relating to realization on collateral shall have
been commenced prior to such 90th day; or
(ii) during any period commencing with the commencement of any
judicial proceeding and/or other proceedings (judicial or non-judicial) as
described in clause (i) above and ending only upon payment in full of the
Senior Debt in cash.
If at any time during a Covenant Default Standstill Period existing pursuant to
clause (i) above, the Bank shall be restrained, prohibited or ordered by a court
of competent jurisdiction or governmental agency asserting jurisdiction (or
prohibited or prevented by any relevant law, rule or statute) from accelerating
the Senior Debt or any of same or from commencing the judicial or non judicial
proceedings described in clause (i) above, the Covenant Default Standstill
Period shall be extended until the later of: (A) the date upon which it would
have otherwise expired pursuant to the terms of clauses (i) and (ii) above, or
(B) the 30th day following the last day on which the Bank is so restrained,
prohibited, ordered or prevented. As used herein, a "Covenant Default
Standstill Notice" is a written notice given by the Bank to the Subordinated
Creditor, at its address set forth below, stating that an Event of Default (as
defined in the Loan Agreement) has occurred under any of Sections 3.7, 3.8, 3.9
and/or 3.10 of the Loan Agreement and is then continuing or would result from
any proposed
-3-
<PAGE>
payment in respect of Subordinated Debt. Notwithstanding anything provided
above, the Bank may not give more than one Covenant Default Standstill Notice
during any 180-day period.
3. The Subordinated Creditor agrees to execute and deliver all such
Uniform Commercial Code subordination statements as the Bank may reasonably
request in order to evidence the subordination contained herein. The
Subordinated Creditor agrees not to commence foreclosure proceedings against any
collateral for the Subordinated Debt unless the Bank has already commenced
foreclosure proceedings against the same collateral or (if earlier) that date on
which no Payment Default Standstill Period nor any Covenant Default Standstill
Period then remains in effect and in any event after the Subordinated Creditor
has given the Bank not less than 30 days' prior written notice of its intent so
to proceed. In any event, the Subordinated Creditor will turn over to the Bank
all proceeds of any foreclosure against collateral for the Subordinated Debt,
such proceeds to be applied against the Senior Debt until same shall have been
paid in full.
4. In the event of an acceleration of any Senior Debt or the failure to
pay any Senior Debt at maturity, or in the event of any foreclosure by the Bank
with respect to any Collateral (as defined in the Loan Agreement), or in the
event of a distribution of the assets, dissolution, winding-up, liquidation or
reorganization of the Borrower (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors or
otherwise):
(a) The Senior Debt shall be paid and satisfied in full in cash before the
Subordinated Creditor is entitled to receive any payment on account of
Subordinated Debt, and any payment or distribution to which any holder of
Subordinated Debt would otherwise be entitled on account of its Subordinated
Debt, but for the subordination provisions of this Agreement, shall be paid
directly to the Bank.
(b) In the event that any such payment on account of Subordinated Debt or
distribution of assets of the Borrower shall be received by the Subordinated
Creditor in violation of the subordination provisions of this Agreement, such
payment or distribution shall be held by the Subordinated Creditor in trust for
the benefit of the Bank and, upon demand, shall be paid over forthwith to the
Bank.
5. The Subordinated Creditor irrevocably authorizes and directs the Bank
and its successors and assigns and any trustee in bankruptcy, receiver or
assignee for the benefit of creditors of the Borrower, whether in voluntary or
involuntary liquidation, dissolution or reorganization, to take such action in
the name of the Subordinated Creditor as the Bank may deem to be necessary or
appropriate to effectuate the subordination provided for in this Agreement and
to file all such claims and proofs of claim as the Bank may deem necessary or
appropriate to collect on the Subordinated Debt or any of same; and the
Subordinated Creditor hereby
-4-
<PAGE>
irrevocably appoints the Bank and its successors and assigns, acting severally,
or any such trustee, receiver or assignee, as the attorney- or attorneys-in-fact
of the Subordinated Creditor for such purpose, with full powers of substitution
and resubstitution. The power of attorney granted herein is a power coupled with
an interest and is, therefore, irrevocable.
6. The terms of this Agreement, the subordination effected hereby and the
rights of the holder or holders of Senior Debt shall not be affected by: (i) any
amendment of or addition or supplement to the Loan Agreement, the Revolving
Note, any Term Note or any other instrument or agreement relating to the Senior
Debt or securing or guaranteeing any of the Senior Debt, (ii) any exercise or
non-exercise of any right, power or remedy under or in respect of the Senior
Debt or any instrument or agreement relating thereto, or securing or
guaranteeing any of same, or (iii) any waiver, consent, release, indulgence,
extension, renewal, modification, delay or other action, inaction or omission in
respect of any Senior Debt or any instrument or agreement relating thereto, or
securing or guaranteeing any of same, all whether or not the holders of the
Subordinated Debt shall have had notice or knowledge of any of the foregoing.
7. As long as any of the Senior Debt shall be outstanding or any
agreement by the Bank as to the advance of funds or other extension of credit to
the Borrower shall be in effect:
(a) No note or instrument evidencing any Subordinated Debt shall be
amended, terminated or otherwise affected without the prior written consent of
the Bank.
(b) The Subordinated Creditor will neither demand nor receive any payment
of any of the Subordinated Debt, under the Subordinated Note or otherwise,
except payments expressly permitted under Section 2 above.
8. Unless and until the Senior Debt has been paid in full in cash, the
Subordinated Creditor shall not be entitled to any right of subrogation,
contribution or similar right, regardless of any payment made hereunder.
9. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
10. The Subordinated Note and each other promissory note now or hereafter
evidencing any of the Subordinated Debt shall be marked with the following
legend:
"Payment of this note is subject to the terms and conditions of a
Subordination Agreement dated September 6, 1996 between the payee
-5-
<PAGE>
and Fleet National Bank. A copy of said Subordination Agreement may be
obtained, upon written request of any holder of this note, from Fleet
National Bank, 75 State Street, Boston, MA 02109."
11. Nothing contained in this Agreement or otherwise (including, without
limitation, any right of subrogation, contribution or similar rights now or
hereafter held by the Subordinated Creditor) will in any event be deemed to
constitute any holder of Senior Debt the agent of the Subordinated Creditor for
any purpose nor to create any fiduciary relationship between any such holder of
Senior Debt and the Subordinated Creditor. The Subordinated Creditor
acknowledges and agrees that, notwithstanding any subrogation, contribution or
similar rights or any other right which the Subordinated Creditor may now or
hereafter have, due to payment of the Senior Debt or otherwise, no release,
action or inaction with respect to any collateral for Senior Debt; nor any
amendment to the Loan Agreement, the Revolving Note, any Term Note or any
instrument or agreement relating to, securing or guaranteeing any of the Senior
Debt; nor any exercise or non-exercise of any right, power or remedy under or in
respect of any of the Senior Debt or any instrument or agreement relating to,
securing or guaranteeing any of the Senior Debt; nor any waiver, consent,
release, indulgence, extension, renewal, modification, delay or other action,
inaction or omission (intentional or unintentional) in respect of any of the
Senior Debt or any collateral therefor or any instrument or agreement relating
to, securing or guaranteeing any of the Senior Debt will in any event give rise
to any claim against any holder of Senior Debt or any officer, director,
employee or agent of such holder.
12. This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
Executed, as an instrument under seal, as of the day and year first above
written.
SUBORDINATED CREDITOR:
MASSACHUSETTS CAPITAL
RESOURCE COMPANY
By:/s/Ben Bailey III
------------------------------
Name:
Title:
Address:
-6-
<PAGE>
Accepted:
FLEET NATIONAL BANK
By: /s/ Thomas Davies
-------------------------------
Name:
Title:
Acknowledged and agreed to:
PERITUS SOFTWARE SERVICES, INC.
By: /s/ Allen K. Deary
-------------------------------
Name:
Title:
-7-
<PAGE>
EXHIBIT 10.36
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
LICENSE AND ALLIANCE AGREEMENT
------------------------------
This LICENSE AND ALLIANCE AGREEMENT (the "Agreement") is made as of May 1, 1996
by and between CSC Consulting, Inc., a Massachusetts corporation with its
principal place of business at University Office Park, 29 Sawyer Road, Waltham,
Massachusetts 02154 ("CSC") and Peritus Software Services, Inc. a Massachusetts
corporation with its principal place of business at 304 Concord Road, Billerica,
Massachusetts 01821 ("Peritus").
BACKGROUND
CSC and Peritus possess complementary skills and offerings,
and they believe that together they can provide Year 2000
("Y2000") solutions to their clients and customers through
engaging in certain joint activities under the terms set out
below with the objective of developing new business for each
of the parties. In consideration of the foregoing recitals and
the mutual covenants set forth herein, the parties agree as
follows:
1. SCOPE
- --------------
1.1 This Agreement sets forth the general terms of the relationship between
the parties. Specific activities of the parties under the terms of this
Agreement will be set forth in Schedules to this Agreement. Each Schedule
executed by the parties shall be incorporated in and made a part of this
Agreement. In the event of an inconsistency between the terms of a Schedule and
the terms of this Agreement, the terms of the Schedule shall take precedence to
the extent of the inconsistency.
1.2 Except as otherwise expressly provided herein or in a Schedule, CSC and
Peritus agree that this Agreement is non-exclusive, and neither party shall be
prevented hereby from entering into similar arrangements with other parties.
2. CERTAIN DEFINITIONS
- ----------------------------
2.1 Automate:2000. The Peritus services utilizing Peritus processes,
methodologies, and technology for renovating computer software code to provide
Y2000 compatibility.
2.2 AutoEnhancer/2000. A Peritus Y2000 conversion product, based on the
Peritus Code Analyzer, which can be used to identify, correct and verify date-
field processing
<PAGE>
in mainframe computer application systems including program source code,
production Job Control Language ("JCL") files and data files.
2.3 Licensed Software. All software, together with related documentation,
comprising Automate:2000 and Auto/Enhancer 2000, which is licensed to CSC
herein.
3. OVERVIEW OF RELATIONSHIP
- ---------------------------------
3.1 The parties will co-operate with each other in order to identify,
develop and exploit new business opportunities for each party, as more
specifically provided in a Schedule.
3.2 Each party will provide the other with information and support as may
be requested and mutually agreed in a Schedule, in order to enable the parties
to pursue mutually beneficial business opportunities, joint bids or other
initiatives specified in Schedules.
3.3 Each party will promote the services, products and offerings of the
other in accordance with the Schedules.
3.4 Each party will facilitate contacts and the dissemination of
information between the parties by providing the other with opportunities to
present and demonstrate its offerings at the appropriate sales and marketing,
technical and other such meetings and conferences as may be mutually agreed.
4. CONFIDENTIALITY
- ------------------------
4.1 It is anticipated that each of the parties will disclose to the other
proprietary and confidential information which is identified as proprietary and
confidential at the time of disclosure or which can reasonably be regarded as
confidential ("Information"). Information shall include software programs,
technical data, customer information and business information of the parties.
4.2 Each party shall be a "Disclosing Party" with respect to Information
which that party discloses to the other and shall be a "Receiving Party" with
respect to Information which that party receives from the other. A Disclosing
Party shall not identify as Information any information which the Disclosing
Party does not, in good faith, consider to be proprietary and/or confidential.
4.3 The Receiving Party shall employ diligent efforts to maintain the
secrecy and confidentiality of all Information. Such diligent efforts shall be
at least equivalent to that degree of care which Receiving Party normally
exercises with regard to its own property that it maintains secret and
confidential, but in any event no less than a reasonable degree of care.
-2-
<PAGE>
4.4 The Information may be disclosed only for purposes of the joint
activity with Disclosing Party and only to the Receiving Party's employees with
a need to know, provided that each such employee has previously been advised of
the confidentiality obligations of this Agreement.
4.5 The disclosure of Information shall not be construed to grant to the
Receiving Party any ownership or other proprietary interest in the Information.
The Receiving Party agrees that it does not acquire any title, ownership, or
other intellectual property right or license by virtue of such disclosure.
4.6 A Receiving Party has no obligation with respect to any Information
disclosed hereunder which: (a) was in Receiving Party's possession before
receipt from Disclosing Party other than through prior disclosure by Disclosing
Party; or (b) is or becomes a matter of general public knowledge through no
breach of this Agreement; or (c) is rightfully received by Receiving Party from
a third party without an obligation of confidentiality; or (d) is independently
developed by Receiving Party; or (e) is disclosed under operation of law,
governmental regulation, or court order, provided Receiving Party first gives
Disclosing Party notice and a reasonable opportunity to secure confidential
protection of such Information.
4.7 Upon termination of this Agreement, the Receiving Party shall (a)
immediately cease using the Information, (b) promptly return to the Disclosing
Party all tangible embodiments of the Information, and (c) promptly certify in
writing Receiving Party's compliance with this paragraph. The confidentiality
obligations of a Receiving Party under this Agreement shall survive any
cancellation, expiration or termination hereof.
4.8 In the event that a Receiving Party breaches the provisions of this
Article 4, the damage to the Disclosing Party will be irreparable. Therefore, in
the event of a breach or threat of breach, Disclosing Party shall be entitled to
equitable relief to restrain such breach or threat of breach, in addition to any
other relief available at law or in equity.
5. INTELLECTUAL PROPERTY RIGHTS
- -------------------------------------
5.1 Except as expressly provided herein or in a Schedule, nothing in this
Agreement shall be construed to grant to either party any ownership or other
interest in the intellectual property of the other.
5.2 (a) Subject to the terms of this Agreement and the attached Schedules,
Peritus hereby grants and CSC hereby accepts a non-exclusive license to use the
Licensed Software in connection with providing Year 2000 services during the
term of this Agreement. Payment for such license shall be made in accordance
with the terms set forth in the Schedules.
-3-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Astericks denote such omissions.
(b) Subject to the terms of this Agreement and the attached Schedules,
Peritus hereby grants to CSC a non-exclusive license to use Peritus trademarks
and service marks in accordance with good trademark and service mark practices.
CSC shall comply with any reasonable practices promulgated by Peritus concerning
the use of such marks. In the event that Peritus reasonably determines that CSC
is using such marks in violation of the aforementioned practices, Peritus shall
have the right to terminate the license to use such marks upon thirty days
written notice, if the violation is not cured within the thirty-day notice
period.
5.3 Peritus shall, at its own expense, deposit and maintain a copy of the
source code and documentation for the Licensed Software ("Deposit Materials") in
escrow with Data Securities International, Inc., as Escrow Agent, pursuant to a
Source Code Escrow Agreement in the form of Exhibit A attached hereto. For
purposes of the Source Code Escrow Agreement, this Agreement shall be considered
a License Agreement. In the event of an inconsistency between the Source Code
Escrow Agreement and this Agreement, the terms of this Agreement shall prevail
to the extent of the inconsistency.
5.4 Peritus shall maintain in escrow the latest version of the Licensed
Software and documentation.
5.5 CSC's use of the Deposit Materials shall be subject to the terms and
conditions of this Agreement.
6. PUBLICITY
- ------------------
Neither party shall issue a press release or make any public announcement of the
terms of this Agreement or the activities hereunder without the prior written
consent of the other party.
7. TERM AND TERMINATION
- -----------------------------
7.1 This Agreement shall become effective upon execution from the date
first set forth above and shall continue in full force and effect for a period
of one (1) year unless extended pursuant to the terms hereof.
7.2 If during the first year of this Agreement, CSC shall have paid Peritus
license fees in the amount of at least ************************* Dollars, then
this Agreement will renew automatically for an additional one (1) year term
commencing upon the expiration of the
-4-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
initial term. If, during the second and subsequent years of this Agreement, CSC
shall have paid Peritus license fees in the amount of at least
********************* Dollars per year, then in each such year this Agreement
will renew automatically for an additional one (1) year term commencing upon the
expiration of the previous term. CSC may cancel automatic renewal and thereby
terminate this Agreement by giving written notice thereof to Peritus no later
than forty-five (45) days prior to the end of the current term.
7.3 CSC may terminate this Agreement at any time upon three (3) months
written notice to Peritus, for any reason or for no reason.
7.4 Either party may terminate this Agreement for breach upon thirty (30)
days written notice in the event that the other party fails to cure the breach
within said thirty (30) days. A failure of CSC to make timely payment of any
amounts owed to Peritus hereunder shall constitute a material breach.
7.5 Either party may, by giving written notice thereof to the other party,
terminate this Agreement as of a date specified in such notice in the event that
the other party (a) terminates or suspends its business; (b) becomes a debtor in
a bankruptcy or insolvency proceeding under federal or state statute; (c)
becomes insolvent or becomes subject to direct control by a trustee, receiver or
similar authority; or (d) is acquired by a competitor of, or acquires a
controlling interest in a competitor of, the party giving notice. In the event
of any such termination, the license granted to CSC hereunder shall remain in
effect as to work under proposals accepted and projects begun during the term
hereof, until the completion of all such work.
7.6 The parties may, in an attached Schedule, agree upon liquidated damages
to be paid by either of them in the event of termination of this Agreement for
breach.
8. WARRANTY; INDEMNITY; LIMITATION OF LIABILITY
- -----------------------------------------------------
8.1 Each party warrants that materials furnished by such party hereunder
will not infringe any United States intellectual property rights, including but
not limited to patents, copyrights and trademarks, of any third party. The
furnishing party shall indemnify and defend the other party from and against any
claim that materials furnished hereunder infringe any such intellectual property
right, shall take all reasonable action for settlement or compromise of the
claim or any action based thereon, and shall pay any and all settlements reached
or costs and damages awarded, including reasonable attorney's fees.
-5-
<PAGE>
8.2 EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER PARTY MAKES ANY EXPRESS
OR IMPLIED REPRESENTATIONS OR WARRANTIES INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
8.3 Neither party shall be liable hereunder for special, indirect,
consequential or incidental losses or damages of any kind or nature whatsoever,
including but not limited to lost profits, lost savings, or other costs,
charges, penalties, or liquidated damages, regardless of whether arising from
breach of contract, warranty, tort, strict liability or otherwise, even if
advised of the possibility of such loss or damage, or if such loss or damage
could have been reasonably foreseen. A party's liability shall not be so limited
with respect to injuries to persons or damage to tangible property arising out
of the negligence or wilful misconduct of such party or its employees.
9. ASSIGNMENT
- -------------------
Neither party may assign its rights or delegate its obligations hereunder
without the prior written consent of the other, which consent shall not be
unreasonably withheld. Any assignment in violation of this provision is void.
10. EMPLOYEE SOLICITATION
- ------------------------------
Each party agrees that, during the term of this Agreement and for a period of
one hundred eighty (180) days thereafter, each party will not hire any employee
of the other party who has been directly involved in the performance of this
Agreement, without the express written consent of the other party. Additionally,
each party agrees not to contract for the services of any individual who has
been directly involved in the performance of this Agreement as an employee of
the other party, during the term of this Agreement and for a period of one
hundred eighty (180) days thereafter.
11. INDEPENDENT CONTRACTORS; COSTS
- ---------------------------------------
The parties shall at all times be independent parties. Neither party is an
employee, joint venturer, agent, or partner of the other; neither party is
authorized to assume or create any obligations or liabilities, express or
implied, on behalf of or in the name of the other. The employees, methods,
facilities and equipment of each party shall at all times be under the exclusive
direction and control of that party. Except as otherwise expressly agreed in a
Schedule, each of the parties shall bear its own costs and expenses incurred in
connection with its performance hereunder.
12. DISPUTE RESOLUTION
- ---------------------------
-6-
<PAGE>
The parties shall attempt, in good faith, to resolve any controversy, claim, or
dispute arising out of this Agreement through negotiations. Any dispute shall be
referred promptly to the level of management of each party authorized to resolve
the dispute.
13. FORCE MAJEURE
- ----------------------
Neither party shall be considered in default in the performance of any
obligation hereunder to the extent that the performance of such obligation is
prevented or delayed by fire, flood, explosion, strike, war, insurrection,
embargo, government requirement, civil or military authority, act of God, or any
other event, occurrence or condition which is not caused, in whole or in part,
by that party, and which is beyond the reasonable control of that party. The
parties shall take all reasonable action to minimize the effects of any such
event, occurrence or condition.
14. SEVERABILITY
- ---------------------
If any provision of this Agreement is found invalid or unenforceable by a court
of competent jurisdiction, the remainder of this Agreement shall continue in
full force and effect.
15. RESERVATION OF RIGHTS
- ------------------------------
A delay or failure in enforcing any right or remedy afforded hereunder or by law
shall not prejudice or operate to waive that right or remedy or any other right
or remedy, including any remedy for a failure breach of this Agreement, whether
of a like or different character.
16. ENTIRE AGREEMENT
- -------------------------
This Agreement, together with every Schedule executed by the parties,
constitutes the entire agreement of the parties, superseding any and all
previous agreements and understandings whether oral or written. No modification
or waiver of the provisions of this Agreement shall be valid or binding on
either party unless in writing and signed by both parties.
17. HEADINGS
- -----------------
The headings used in this Agreement are intended for convenience only. They are
not a part of the written understanding between the parties. They shall not
affect the construction and interpretation of this Agreement.
18. NOTICES
- ----------------
-7-
<PAGE>
Every notice and demand required or permitted under the terms of this Agreement
shall be in writing and shall be sent by certified mail, return receipt
requested, or by other means of delivery requiring a signed receipt, to the
other party's address first set forth above. All notices shall be effective upon
receipt. A party may change its address by giving written notice to the other
party in accordance with this Article. All notices shall be sent to the
following:
TO CSC TO PERITUS
------ ----------
Tom McAndrew Allen K. Deary
Managing Director Vice President
CSC Consulting, Inc. Peritus Software Services, Inc.
29 Sawyer Road 304 Concord Road
Waltham, MA 02154 Billerica, MA 01821
19. GOVERNING LAW
- ----------------------
This Agreement shall be governed by and construed in accordance with the
domestic laws of the Commonwealth of Massachusetts, excluding its conflicts of
laws principles.
(The remainder of this page is intentionally left blank.)
-8-
<PAGE>
IN WITNESS WHEREOF the parties have caused this License and Alliance Agreement
to be executed in counterparts by their authorized representatives as of the
date first set forth above.
PERITUS SOFTWARE SERVICES, CSC CONSULTING, INC.
INC.
/s/ Allen K. Deary /s/ Tom McAndrew
- --------------------------------------- --------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
Allen K. Deary Tom McAndrew
- --------------------------------------- --------------------------------
NAME NAME
Vice President Managing Director
- --------------------------------------- --------------------------------
TITLE TITLE
- --------------------------------------- --------------------------------
DATE DATE
-9-
<PAGE>
SCHEDULE NO. 1
--------------
This Schedule is incorporated in and made a part of the License and Alliance
Agreement of CSC and Peritus dated May 1, 1996 (the "Agreement"). All defined
terms used herein shall have the same meanings set forth in the Agreement.
1. Additional Definitions
- -------------------------------
1.1 Front End. Software that makes a modification of a target computer
language dialect and embedded calls to other packages so that the language may
be converted into Peritus Intermediate Language and subsequently processed
through the Peritus technologies.
1.2 Mass Change Factory. The Automate:2000 renovation facility including
the hardware, software, methodology, and process used in Y2000 conversions.
1.3 Competency Center. A virtual facility from which an entire Y2000
renovation can be completed. A Competency Center shall be staffed with
individuals competent in the following areas: sales, marketing, global
assessment, identification, correction and verification, testing, and project
management.
1.4 Pilot Renovation. A conversion of a subset of a client's code
(approximately 20,000 to 200,000 lines of software code) to demonstrate the
effectiveness of the Licensed Software.
1.5 Technical Support. Level 1, 2, or 3 response to user inquiries
regarding the use of Peritus' Automate:2000, AutoEnhancer/2000 and Mass Change
Factory technologies and processes, as specified in Attachment A, which is
incorporated herein and made a part hereof.
2. Activities
- -------------------
2.1 Peritus and CSC will establish a unique and specific technical
direction and strategy for Y2000 solutions. Peritus will share with CSC its
current road map for Front End development to ensure that required Front Ends
are prioritized to meet CSC's market needs.
2.2 [Deleted.]
2.3 CSC will develop its Y2000 services to be based upon the Peritus
Automate:2000 technology.
2.4 Peritus and CSC may jointly develop new products and technologies for
Y2000 solutions for their exclusive use under the terms hereof. A development
road map and
-10-
<PAGE>
subsequent Schedules will be developed and made a part of this Agreement within
forty-five (45) days of the effective date hereof. Peritus and CSC will meet at
least once in each calendar quarter to update and to agree upon the development
road map, including priorities. Where there is not an agreement on the timing or
prioritization of the road map, Peritus and CSC may, separately or in
conjunction with other entities, develop the initiative(s) in question.
Technologies developed jointly by Peritus and CSC, pursuant to Statements of
Work following the road map, will be available exclusively to Peritus and CSC
for a period of twelve (12) months from general release of specific
functionality unless otherwise provided in the applicable Statement of Work. CSC
shall have the right to use any enhancement of the Peritus technologies
developed by a third party, whenever Peritus has the right to re-license or to
sublicense such enhancement.
2.5 The current Peritus development road map includes Front Ends for PL/1,
Assembler, RPG, and C. Upon the completion by Peritus of white papers and
development strategies for these Front Ends, Peritus will review Front End
strategies with CSC and, at its discretion, may jointly develop and license
these Front Ends with CSC.
2.6 After twelve (12) months from the effective date hereof, both Peritus and
CSC may elect to re-license technologies in which Peritus and CSC have exclusive
rights under Section 2.4 above, pursuant to separate license agreements.
2.7 If a Peritus licensee approaches Peritus with a specific technology need for
Year 2000 outside of the current Peritus-CSC road map, then Peritus shall have
the right to develop new technologies outside of this Agreement. In these cases,
the technologies developed by Peritus shall be made available to CSC no later
than twelve (12) months after development.
2.8 It is the intention of the parties that Peritus and CSC will jointly seek to
exploit new technology opportunities not expressly mentioned herein. Whenever
Peritus is seeking to form a strategic relationship for the development of new
technologies during the term of this Agreement, CSC shall have a right of first
refusal to participate in the relationship. CSC may accept participation in the
relationship by providing written notice within thirty days after receipt of
written notice from Peritus proposing the relationship. Cost and revenue sharing
in connection with such relationship will be based upon each company's
contribution to the development project and will be subject to a separate
agreement of the parties.
2.9 CSC will be the exclusive provider of Year 2000 renovation services to
Peritus, provided that CSC has sufficient resources to meet demand. CSC must
provide sufficient resources to initiate renovations within sixty (60) days of
execution of a service contract and to complete renovation services in a timely
manner.
-11-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
2.10 Peritus and CSC will review the current Peritus strategy for use of
India-based resources in the delivery of Year 2000 services. India-based
services may be incorporated into a future capacity-and-delivery strategy, by
mutual agreement of the parties.
3. Responsibilities of Peritus
- ------------------------------------
3.1 Technologies to be furnished by Peritus hereunder include all current and
future versions of the AutoEnhancer/2000, collateral materials and associated
user documentation.
3.2 Peritus shall provide such training in sales, marketing, and technical
support as is available as of the effective date of this Agreement and
thereafter. Peritus shall provide technical training at its facilities in
Billerica, Massachusetts, or at an agreed CSC facility, for up to ***********
CSC marketing and sales resources and up to *********** CSC engineers,
programmers, and analysts, in the understanding and use of Peritus technologies.
The training will include the following, in accordance with Attachment B, which
is incorporated herein and made a part hereof:
(a) Core Technology: Peritus will train CSC in all aspects of
Automate:2000 and AutoEnhancer/2000 including underlying theory and execution
logic, and identification, correction and verification of source code. Peritus
will train CSC in techniques associated with creating and modifying "CLPS" Rules
for identification and correction of source code. Included are the use of pilots
and quick pass analyses as proof of concept strategies. Up to *********** for
CSC technical resources will be provided. Peritus will develop the materials for
these classes with input and agreement from CSC. CSC will ensure that
train-the-trainer resources will be included in these classes allowing them to
deliver independently in the future. The training contemplated by this paragraph
will be completed on or before December 31, 1996.
(b) Mass Change Factory: Process and automation steps inside factory.
User interface process and technology. Use of UNIX-based factory tools and third
party tools.
(c) Sales and Marketing Product Training: Product features and
specifications as well as their associated benefits and differentiation in the
Y2000 marketplace. Up to *********** for CSC marketing and sales resources.
Peritus will develop the materials for this class with input and agreement from
CSC. CSC will ensure that train-the-trainer resources will be included in these
classes allowing CSC to deliver these classes independently in the future.
-12-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
3.3 The training outlined in Section 3.2 above and in Attachment B shall be
available at Peritus locations or on-site at current or future CSC facilities.
3.4 Peritus will have primary responsibility for the first wave of technical and
training support of CSC personnel. By following a Train-the-Trainer process, the
parties will prepare CSC for, and CSC will assume primary responsibility for,
technical and training support of its personnel. CSC will develop and support
Competency Centers to train its personnel. Peritus will remain available as
needed for ongoing technical and training support of the CSC trainers in
accordance with Attachment B.
3.5 Peritus will provide up to *********** engineers, programmers, and analysts
as dedicated resources in support of the above activities as long as CSC is
maintaining the minimum revenue volumes identified herein. These resources shall
be available to participate in trade shows, executive conferences, and other
marketing events on dates and locations mutually agreed to by both parties. In
addition, these resources shall be available for customer demonstrations and
presentations, pilots, Front End development, training, renovation support,
factory development and support. The resources shall be available remotely for
reasonable periods of time, as required by CSC, to allow for on-site support of
CSC clients.
3.6 Peritus shall participate in a benchmarking pilot, in which the parties
shall attempt to renovate up to two hundred thousand (200,000) lines of software
code, to establish a business case for an automated tool over a manual process.
4. Responsibilities of CSC
- --------------------------------
4.1 CSC shall use its best efforts to integrate the Peritus technologies and
processes into a complete offering of Y2000 services. In addition to Peritus
technologies and services, CSC's Y2000 services will include global assessment,
testing, and project management services. CSC will recommend and use the Peritus
technologies exclusively in its Y2000 services offering, except in the event
that a client expressly requests otherwise. CSC may, at any time, include
non-competitive products of a third party in its Y2000 services offering.
4.2 CSC shall provide adequate resources, as required in Attachment B, to be
trained and certified in the Peritus technologies and in the processes for
identification, correction and verification of code renovated for Y2000. In
addition, CSC shall provide adequate
-13-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
facilities, equipment and software to equip a Mass Change Factory appropriate to
CSC's business requirements. CSC shall use its best efforts to meet Peritus
demand for Y2000 services, in accordance with Peritus's monthly estimates of its
annual volumes.
4.3 CSC will assign personnel certified by Peritus training procedures for the
delivery of all Automate:2000 services.
4.4 CSC will provide project and account management resources and will be
responsible for all client contact in connection with Automate:2000 services.
4.5 CSC hereby designates Tom McAndrew, of CSC Consulting & Systems Integration,
as CSC's primary contact with Peritus for all Y2000 services to be furnished by
CSC. All divisions of CSC which provide services hereunder shall comply with the
terms of this Agreement. Peritus may directly contact individuals within CSC
other than Tom McAndrew, but only with his knowledge and assent.
5. Payment
- ----------------
5.1 The Pricing Schedule attached hereto as Attachment C is incorporated in and
made a part of this Agreement.
5.2 In the event **************************************************************
************************************************, Peritus shall immediately so
notify CSC in writing and ******************************************** pursuant
to terms, conditions and restrictions substantially identical
*********************************.
5.3 CSC will provide Peritus a monthly reconciliation and payment for lines of
software code ("LOC") completed and processed hereunder. Payment shall be due
when the code has finished the correction and verification phases of the Peritus
technologies and is available to the end user for Systems Testing in the
mainframe environment. Peritus shall have the right, at its cost, at reasonable
times and upon reasonable notice, to review CSC's records pertaining to LOC
completed and processed and payments therefor to Peritus, to ensure CSC's
compliance with reporting and payment provisions.
5.4 The parties shall measure LOC by counting each line processed through the
Peritus technologies. The lines are considered completed when they pass from the
Peritus technologies into integration testing. Commented lines are not included.
JCL and copybooks are counted only one time. CSC shall be entitled to a refund
of all payments
-14-
<PAGE>
made for completed LOC that fail to perform, as a result of a deficiency in the
Licensed Software, in integration testing or otherwise during the warranty
period.
5.5 For Pilot Renovations, the parties may agree upon pricing which varies from
the formula herein. The agreed pricing shall accommodate the inability otherwise
to make the Pilot Renovation cost-effective due to the small amount of code
renovated and the need for intensive interaction with the end user in such an
effort. Peritus will work with CSC to aggressively price specific opportunities
of strategic importance to CSC, so as to ensure the best opportunity for
business success.
5.6 Each of Peritus and CSC will introduce the other in Y2000 renovation
opportunities. In any instance where either party introduces the other to a
client opportunity (as demonstrable by correspondence of the parties confirming
the introduction), and the client engages the party introduced, but not the
party making the introduction, then the party making the introduction shall be
compensated according to Attachment C.
6. Warranty
- -----------------
Peritus warrants that converted and completed LOC shall not fail to perform as a
result of any deficiency in the Licensed Software, for a period of ninety (90)
days after each conversion has entered into production. If CSC is required by a
client to correct any converted and completed lines of code before a Peritus
correction is available, Peritus will refund all license fees paid by CSC for
conversion of the affected code. Defects caused by Licensed Software will be
classified and resolved in an order of priority based on criticality. If Peritus
is unable to resolve a defect in the Licensed Software, it will refund to CSC
the fees paid for the renovation of the LOC that fail to perform as a result of
the defect.
7. Limitation of Liability and Damages
- --------------------------------------------
The liability of either party to the other or to any third party for damages due
to defects in Licensed Software shall be limited to amounts paid to such party
for the renovation of the LOC that fail to perform due to such defects.
8. Intellectual Property
- ------------------------------
8.1 Peritus retains the exclusive right to make modifications to the back-end
engine in the Licensed Software. Any and all Front End enhancements made by
Peritus will be the property of Peritus, and CSC shall have a non-exclusive
license to use such Front End enhancements in connection with its Y2000
services.
-15-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
8.2 Any and all Front End enhancements made by CSC will be the property of
CSC, and Peritus shall have a non-exclusive license to use, but not to re-
license or sublicense, such Front End enhancements in connection with Y2000
renovations. CSC will use such enhancements in conjunction with Peritus Y2000
technologies only for Y2000 renovation services.
8.3 Each tool developed by either party hereunder and used for connecting
Licensed Software to other products used by CSC in providing Y2000 services will
be owned by the developing party, and the other party shall have a non-exclusive
license to use, but not to re-license or sublicense, each such tool in
connection with Y2000 renovations, without a separate agreement.
9. Use of Name
- -------------------
CSC will knowledge the use of Peritus technologies and will refer to
Automate:2000 and AutoEnhancer/2000 as Peritus Technologies or Peritus services
in its presentations, demonstrations, and marketing and sales literature
concerning Y2000 services.
ACKNOWLEDGED AND ACCEPTED BY
PERITUS SOFTWARE SERVICES, CSC CONSULTING, INC.
INC.
/s/ Allen K. Deary /s/ Tom McAndrew
- -------------------------------- -------------------------------
Authorized Signature & Date Authorized Signature & Date
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<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ATTACHMENT A
TO SCHEDULE NO. 1
Product Technical Support
Standard Product Technical Support:
- ----------------------------------
Standard Product Technical Support will be provided by Peritus to Licensee for
the term of the contract as follows:
Hours of Support: 8:00 am. to 5:00 p.m. Eastern Time
- ----------------
In the event that there is a defect in, CSC needs technical advice concerning
the installation or the operation of, or CSC desires a modification to, the
Licensed Software, CSC may seek Product Technical Support from Peritus. Peritus
will categorize and prioritize the request for support according to nature of
the request, as determined by the "Definition" of the request in the Request
Table below.
Peritus will then assign, within the "Response Time" associated with the
priority of the request, a technically qualified person to address the concern.
Peritus does not guarantee that a problem or concern that is the subject matter
of a request can be resolved. However, Peritus will make reasonable efforts to
resolve all defects and address CSC's concerns arising from the request.
Notwithstanding the foregoing, Peritus, in its sole discretion, may decide
whether to seek to attempt to resolve or address a request for an enhancement
(i.e., a Priority 4 Request).
Request Table
-------------
<TABLE>
<CAPTION>
Priority Definition Response Time
-------- ---------- -------------
<S> <C> <C>
1 ********************** ***********
2 ********************** ***********
3 ********************** ***********
4 ********************** ***********
</TABLE>
-17-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Peritus will provide update releases to the Licensed Software which may include
some or all of the following: i) defect (bug) fixes, ii) new or modified
functionality, or iii) new Peritus Front Ends. Peritus will also provide release
notes documenting changes.
-18-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ATTACHMENT B
TO SCHEDULE NO. 1
Training
Core Training:
*********** class for up to*********** CSC employees. This class will be offered
up to ******* *** times. Maximum of *********** student days.
Factory Training:
*********** class for up to *********** CSC employees. This class will be
offered up to *********** times. Maximum of *********** student days.
Marketing/Product Training:
*********** class for up to *********** CSC employees. This class will be
offered up to *** ***times. Maximum of *********** student days.
Other Training:
Additional training will be available as mutually agreed or as developed and
defined by Peritus (i.e., factory manager HW, SW LAN, configuration, etc.).
These classes will be offered at a *********** discount from Peritus commercial
prices then in effect.
-19-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ATTACHMENT C
TO SCHEDULE NO. 1
Pricing and Volumes
<TABLE>
<CAPTION>
<S> <C>
Cost Per Line of Code LOC
Open Market
-----------
*********** ***********
*********** ***********
*********** ***********
*********** ***********
* Million Lines of Code
</TABLE>
This pricing is for CSC in aggregate per year across all divisions so long as
CSI is recognized as the point. These prices are targets for 1996 and subject to
the following: Productivity measurements - expected is **********************
through the factory.
If actual productivity is lower, then the impact on Peritus pricing will be
reviewed.
-20-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Pilots Peritus flat fee per pilot of up to *********************************
- ------ ***********
Pricing for Peritus use of CSC Factory
Cost Per Line of Code
<TABLE>
<CAPTION>
<S> <C>
Peritus Use
Excluding License fee
*********** ***********
*********** ***********
*********** ***********
*********** ***********
<CAPTION>
<S> <C> <C>
Referral Fee *********** **********************
***********
*********** **********************
***********
</TABLE>
-21-
<PAGE>
EXHIBIT A
SOURCE CODE ESCROW AGREEMENT
This Agreement (the "Agreement") is made as of November 15, 1996 among
Peritus Software Services, Inc., a Massachusetts corporation having its
principal place of business at 304 Concord Road, Billerica, MA 01821-3485
("Peritus" or "Licensor") and Data Securities International, Inc. ("Escrow
Agent"), with the respective addresses set forth in Exhibit A attached hereto,
---------
and Licensor's customers who become parties to this Agreement pursuant to
Section 16 below ("Licensees").
1. Background. Licensor has licensed or will license the Licensed Program
----------
(as defined below) to each Licensee pursuant to a written software license
agreement (a "License Agreement"). Licensor has agreed to place in escrow the
Source Code (as defined below) for the Licensed Program, to be released to
Licensees upon the occurrence of certain events as hereinafter described.
2. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
(a) Licensed Program. The computer program(s), consisting of a series of
----------------
instructions or statements in machine readable, object code form only, licensed
to Licensees by Licensor pursuant to License Agreements.
(b) Source Code. The version of the source code used by Licensor to
-----------
generate the Licensed Program, contained on one or more magnetic tapes or other
media, together with a print-out of the source code listing.
(c) Documentation. Explanatory information, whether in machine-readable
-------------
form or otherwise, which would assist a software engineer in understanding the
structure, purpose and operation of the Source Code.
(d) Information. The Source Code and the Documentation, collectively.
-----------
(e) Update Event. The delivery to a Licensee of any new release of the
------------
Licensed Program to which the Licensee is entitled pursuant to the applicable
License Agreement.
(f) Update Information. All information including without limitation
------------------
additional and/or replacement Source Code and Documentation, necessary to bring
the Information in escrow prior to an Update Event into compliance with the
definition of Information contained in Section 2(d) after the occurrence of such
Update Event. The
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<PAGE>
term "Information" shall be deemed to include any such Update Information for
the purposes of this Agreement
(g) License Agreement. A License Agreement refers to the applicable
-----------------
agreement between a particular Licensee and the Licensor under which the
Licensee receives a license from Licensor in regard to the Licensed Program. In
order for an agreement to be considered a License Agreement for the purposes of
this Agreement, Peritus and Licensee must agree in writing that a particular
agreement is to be considered a License Agreement.
3. Appointment of Escrow Agent. Escrow Agent is hereby appointed and
---------------------------
accepts appointment to act as escrow agent hereunder.
4. Fees of Escrow Agent.
--------------------
(a) All fees of Escrow Agent in connection with its duties hereunder
shall be paid by and shared equally by all parties who are Licensees at the time
such fees become due or, if there are no Licensees at any such time; by
Licensor.
(b) Escrow Agent's fees for the initial year of service are due in full
within sixty (60) days after the execution of this Agreement. Annual renewal
fees will be due in full upon the receipt of invoice unless otherwise specified
by the invoice. Late payments are subject to interest at the rate of one and
one-half percent per month (18% per annum) from the due date.
(c) Escrow Agent's fees will be as specified in its standard fee
schedule as modified from time to time. Escrow Agent shall notify Licensor and
each Licensee at least ninety (90) days prior to any increase in its fees. For
any service not listed on its standard fee schedule, Escrow Agent shall provide
a price quotation prior to rendering such service.
5. DISCLAIMER OF WARRANTY AND LIABILITY. THE INFORMATION, IF RELEASED
------------------------------------
TO A LICENSEE HEREUNDER, IS BEING PROVIDED "AS IS" AND WITHOUT WARRANTY OF ANY
KIND, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL. LICENSOR DISCLAIMS ALL
WARRANTIES WITH RESPECT TO THE INFORMATION, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL LICENSOR
BE LIABLE FOR DIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING,
BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES,
ARISING OUT OF OR WITH RESPECT TO THIS AGREEMENT OR THE INFORMATION.
6. Deposit of Information into Escrow. Within thirty (30) days after the
----------------------------------
execution of this Agreement by Licensor and Escrow Agent, Licensor shall deliver
to
-23-
<PAGE>
Escrow Agent one copy of the Information in one or more sealed packages (a
"Deposit"), each of which shall bc separately labeled and accompanied by a
separate written list of its contents in the form of Exhibit B attached hereto
---------
(an "Exhibit B"). Thereafter, within thirty (30) days after the occurrence of
---------
any Update Event, Licensor shall deliver one copy of the Update information in a
sealed package to Escrow Agent accompanied by an Exhibit B. Each Exhibit B shall
--------- ---------
be signed by Licensor prior to submission to Escrow Agent. Upon the delivery of
any Update Information to Escrow Agent; Licensor may instruct Escrow Agent to
return to it any previously delivered Information (other than the most recent
and one previous versions of the Information) which is no longer necessary to
satisfy Licensor's obligations wider this Agreement.
7. Acceptance and Storage of Information.
-------------------------------------
(a) Upon receipt of any Information hereunder, Escrow Agent shall
visually match the accompanying Exhibit B to the labels on the Deposit. Escrow
---------
Agent shall not be responsible for verifying the contents of the Deposit or
validating the accuracy of Licensor's labeling of the Deposit. If Escrow Agent
determines that there is a discrepancy between the Exhibit B and the labels on
---------
the Deposit, Escrow Agent shall notify Licensor within five (5) days after
receipt thereof, and Licensor shall promptly correct such discrepancy.
Acceptance of the Information shall occur when Escrow Agent determines that the
Exhibit B matches the labels on the Deposit. Upon acceptance, Escrow Agent shall
- ---------
sign the Exhibit B and mail copies thereof to Licensor and each Licensee.
---------
(b) After acceptance, Escrow Agent shall store and maintain the
Information in such an environment or facility as Escrow Agent determines, in
its discretion, is suitable for the safekeeping of the Information. Escrow Agent
shall not permit any person to have access to the Information other than in
accordance with this Agreement, and shall maintain security measures, in
accordance with reasonable professional standards, to prevent unauthorized
access to the Information. Escrow Agent shall not release the Information except
in accordance with the provisions of this Agreement.
8. Inspection of Information. Each Licensee shall have the right at its
-------------------------
sole expense from time to time during the term of this Agreement, upon
reasonable notice to Escrow Agent and Licensor, to designate a representative to
inspect, test and review the Information in the presence of a representative of
Escrow Agent and a representative of Licensor, if Licensor so chooses, during
normal business hours for the purpose of determining the completeness and
adequacy of the Information. Such representative shall be an independent
accounting or consulting firm, not employed or regularly retained by or
affiliated with such Licensee, as may be reasonably acceptable to Licensor. As a
condition to such inspection, such representative shall execute a
confidentiality agreement in form and substance reasonably acceptable to
Licensor.
-24-
<PAGE>
9. Release and Delivery of Information.
-----------------------------------
(a) A Licensee may request in writing that Escrow Agent deliver the
Information to such Licensee upon the occurrence of the following event (a
"Triggering Event"):
(i) If Licensor materially breaches its support and maintenance
obligations for the Licensed Program under any written agreement between
Licensor and such Licensee and such breach remains uncured for ninety (90) days
after delivery of written notice thereof to Licensor.
(ii) If a court of competent jurisdiction declares that Licensor is to
be liquidated or a receiver or similar officer has been appointed to liquidate
Peritus business or assets.
(b) Upon receipt by Escrow Agent of notice from a Licensee of
a Triggering Event, Escrow Agent shall promptly deliver a copy of such notice to
Licensor. Escrow Agent shall, ten (10) days after delivery of such notice to
Licensor, deliver the Information to such Licensee, unless within such ten (10)
day period Licensor shall have delivered to Escrow Agent and such Licensee a
written denial that such Triggering Event has occurred. If Escrow Agent receives
such denial within such ten (10) day period, such Licensee's entitlement to
receive the Information under this Agreement shall be resolved by arbitration
pursuant to Section 15 of this Agreement, and Escrow Agent shall retain
possession of the Information pending the final determination by the Arbitration
Panel, which determination may be relied upon by Escrow Agent without further
inquiry.
10. Possession, Use and Protection of the Information.
-------------------------------------------------
(a) If the Information is released to a Licensee pursuant to
this Agreement, Licensor hereby grants to such Licensee a non-exclusive,
royalty-free, non-assignable license to possess and use the Information solely
for the internal support and maintenance of the Licensed Program. Except as set
forth in Section 10(b), such Licensee shall not disclose, market, license, sell,
distribute, sublicense or in any other manner make the Information available to
third parties. Such Licensee shall not under any circumstances copy. duplicate
or otherwise reproduce any Information except as required for the internal
support and maintenance of the Licensed Program.
(b) Each License acknowledges and agrees that title to the
Information shall remain with Licensor at all times and that the Information
shall remain confidential and proprietary to Licensor. If the Information is
released to a Licensee pursuant to this Agreement the Information shall be
received and held by such Licensee in confidence until it falls into the public
domain without breach of this Agreement by such Licensee. Such Licensee shall
limit use of and access to the Information to such of its employees (or third
parties reasonably acceptable to Licensor) as are directly involved in the
internal support and maintenance of the Licensed Program and who are bound by
-25-
<PAGE>
written agreement to preserve the confidentiality thereof. Such Licensee shall
promptly report to Licensor any actual or suspected violation of this Section 10
and shall take all reasonable further steps requested by Licensor to prevent or
remedy any such violation.
(c) If, following the release of the Information to a Licensee,
Licensor subsequently establishes pursuant to Section 15 that the conditions
which constituted a Triggering Event no longer exist, such Licensee shall
immediately cease use of such Information and return such Information (and all
copies thereof) to Escrow Agent together with an Exhibit B. Upon Escrow Agent's
---------
acceptance of such Information in accordance with Section 7(a), such Information
shall be held in escrow in accordance with this Agreement until another
Triggering Event shall have occurred.
11. Termination.
-----------
(a) This Agreement shall continue in effect with respect to a
Licensee until the termination or expiration of the License Agreement between
Licensor and such Licensee unless sooner terminated by the written agreement of
Licensor and such Licensee or for non-payment of Escrow Agent's fees pursuant to
Section 11(b) below. The termination of this Agreement with respect to a
Licensee shall not terminate this Agreement with respect to other Licensees,
except as provided in Section 11(b) below.
(b) This Agreement shall have an initial term of one year,
commencing on the date set forth above in the first sentence of this Agreement
(the "Effective Date"). This Agreement shall automatically bc renewed for
additional one-year periods upon receipt by Escrow Agent of the specified
renewal fees. The initial "Renewal Date" of this Agreement is one year from the
Effective Date and in succeeding years is once year from the most recent Renewal
Date. In the event that the renewal fees are not received within thirty (30)
days prior to the Renewal Date, Escrow Agent shall notify Licensor and each
Licensee that this Agreement will expire on the Renewal Date unless the renewal
fees are paid. If Escrow Agent does not receive the renewal fees by the Renewal
Date, this Agreement shall expire on the Renewal Date without further notice and
without liability of Escrow Agent to the parties to this Agreement.
(c) If this Agreement expires or is otherwise terminated with
respect to a Licensee, all duties and obligations of Escrow Agent to such
Licensee shall terminate, and if this Agreement expires or is otherwise
terminated with respect to all Licensees, all duties and obligations of Escrow
Agent to Licensor and all Licensees shall terminate. If Licensor requests the
return of the Information upon expiration or termination of this Agreement with
respect to all Licensees, Escrow Agent shall return the Information to Licensor
only after Escrow Agent's outstanding invoices and deposit return fees have been
paid. If such fee(s) are not received by Escrow Agent within thirty (30) days
after expiration or termination of this Agreement with respect to all Licensees,
Escrow Agent shall, at its option, destroy or return the Information to
Licensor.
-26-
<PAGE>
12. Responsibilities an Liabilities of Escrow Agent. Escrow Agent shall
-----------------------------------------------
not be liable under this Agreement with respect to the condition or contents of
the Information or for any action taken or omitted in compliance with this
Agreement in good faith and in the exercise of Escrow Agent's own good judgment
or in reliance on advice of Escrow Agent's counsel or for any other cause unless
a court of competent jurisdiction finds that Escrow Agent's conduct was
(i)willful misconduct, (ii)fraudulent, (iii)grossly negligent, (iv)in bad faith
or (v)in disregard of or contrary to the terms of this Agreement. Escrow Agent
shall be obligated only for the performance of such duties as are specifically
set forth in this Agreement and may rely and shall be protected in relying on or
remaining from acting on any order or instrument reasonably and actually
believed by it to be genuine and to have been signed or presented by the proper
party or parties. Escrow Agent shall not be responsible for or be required to
enforce any of the terms or conditions of any agreement between Licensor and any
Licensee. Escrow Agent shall not be responsible or liable in any manner
whatsoever for the performance by Licensor or any Licensee of their respective
obligations under this Agreement.
13. Resignation and Discharge; Successor Escrow Agent.
-------------------------------------------------
(a) Escrow Agent may resign at any time, effective on such date
specified in a written notice of resignation delivered to Licensor and each
Licensee at least ninety (90) days prior to such effective date. Escrow Agent
may be discharged at any time, with or without cause by written agreement of
Licensor and a majority in number of Licensees, effective upon receipt of
written notice of such discharge from Licensor. The resignation or discharge of
Escrow Agent shall not affect the right of Escrow Agent to be paid for its
services through the date of resignation or discharge.
(b) In the event of the resignation or discharge of Escrow Agent,
Licensor shall appoint a successor Escrow Agent (who shall be reasonably
acceptable to a majority in number of Licensees), and such successor Escrow
Agent shall assume the rights, powers and responsibilities of Escrow Agent
hereunder upon its written agreement to act as Escrow Agent hereunder and to
become a party hereto.
(c) Escrow Agent's obligations hereunder shall terminate upon the
effective date of its resignation or discharge, except that it shall continue to
hold the Information in accordance with this Agreement until a successor Escrow
Agent is appointed, at which time Escrow Agent shall deliver the Information to
such successor Escrow Agent. If no successor Escrow Agent is appointed within
thirty (30) days after the effective date of such resignation or discharge,
Escrow Agent shall deliver the Information to the Arbitration Panel pursuant to
Section 15, shall give written notice of the same to Licensor and each Licensee
and shall have no further responsibility with respect thereto.
14. Indemnification. Licensor and each Licensee jointly and severally,
---------------
agree to defend, indeninily and hold Escrow Agent harmless against any loss,
liability or
-27-
<PAGE>
expense, including attorney's fees, incurred by Escrow Agent as a result of any
action taken or omitted in compliance with this Agreement in good faith and in
the exercise of Escrow Agent's own good judgment or in reliance on advice of
Escrow Agent's counsel or for any other cause unless a court of competent
jurisdiction finds that Escrow Agent's conduct was (i) willful misconduct, (ii)
fraudulent, (iii) grossly negligent, (iv) in bad faith or (v) in disregard of or
contrary to the terms of this Agreement.
15. Arbitration. Any dispute regarding the occurrence or non-occurrence
-----------
of a Triggering Event shall be submitted to arbitration before a panel of
arbitrators selected in accordance with the commercial rules of the American
Arbitration Association (the "Arbitration Panel"). The Arbitration Panel shall
hear evidence and arguments and shall limit its deliberations to a determination
of which party would be more likely to prevail on the merits if the dispute were
submitted to a plenary judicial or arbitration proceeding, it being understood
that the applicable Licensee(s) shall bear the burden of proving by a
preponderance of the evidence that a Triggering Event has occurred. The
Arbitration Panel shall provide Escrow Agent with written Notice thereof. The
arbitration shall bc conducted under the then current Federal Rules of Civil
Procedure with respect to discovery, the then current Federal Rules of Evidence
and the then current Commercial Rules of the American Arbitration Association;
provided, however, any such rules conflict with the provisions of this Section
15, the provisions of this Section 15 shall control. If the Arbitration Panel
determines that a Triggering Event has occurred with respect to a Licensee,
Escrow Agent shall immediately release the Information to such Licensee,
provided that if it is subsequently determined pursuant to a final adjudication
of the dispute that a Triggering Event has not occurred, Licensee shall
immediately cease use of the information, shall return the Information to Escrow
Agent, and shall destroy all other copies of the Information, or any part
thereof, in its possession. If the Arbitration Panel determines that a
Triggering Event has not occurred Escrow Agent shall continue to hold the
Information in accordance with this Agreement. The proceedings of the
Arbitration Panel shall be held, and any determination of the Arbitration Panel
shall be deemed to have been made, in Boston, Massachusetts. All questions of
law shall be decided in accordance with the laws of the Commonwealth of
Massachusetts and of the United States of America.
16. Addition of Licensees. Licensor may, in its sole discretion and
---------------------
without obtaining the consent of Escrow Agent or any Licensee, add its customers
as Licensees under this Agreement Licensor and each such customer so added shall
execute a Counterpart Signature Page to this Agreement substantially in the form
of Exhibit C attached hereto, which shall be promptly delivered to Escrow Agent.
Escrow Agent shall acknowledge receipt of such Counterpart Signature Page by
signing it and returning copies to Licensor and such Licensee, and such Licensee
shall thereafter be deemed a "Licensee" for all purposes of this Agreement.
17. Notices. All notices required or permitted hereunder shall be given
-------
in writing and shall be deemed delivered upon (i) delivery by messenger or
overnight
-28-
<PAGE>
courier service or (ii) three (3) days following the date of mailing by
registered or certified mail, postage prepaid, addressed to Licensor or Escrow
Agent at the applicable address Set forth in Exhibit A attached hereto and
---------
addressed to a Licensee at the address set forth on the applicable Counterpart
Signature Page. Any party may change its address by ten (10) days' written
notice given to the other party in the manner set forth in this Section 17.
18. Governing Law. This Agreement is made in and shall be construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts.
19. No Waiver. No delay or omission by any party in exercising any
---------
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by a party on any one occasion shall be effective only
in that instance and shall not be construed as a bar or waiver of any right on
any other occasion.
20. Severability. In the event that any provision of this Agreement
------------
shall be invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
21. Successors and Assigns. Neither Licensor nor any Licensee may
----------------------
assign this Agreement without the written consent of the other, except that no
such consent shall be required for an assignment in connection with the sale of
all or substantially all of a party's business by merger, sale of stock, sale of
assets or otherwise. Notwithstanding anything to the contrary in the foregoing,
Licensee may not in any case assign this Agreement and its status as a Licensee
to another party if the applicable License Agreement is not and/or cannot be
assigned to the same said party. Escrow Agent may not assign this Agreement
without the written consent of Licensor and a majority in number of Licensees.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties, their respective executors, administrators-, successors
and assigns.
22. Amendment. This Agreement may be amended or modified only by a
---------
written instrument executed by Escrow Agent, Licensor and a majority in number
of Licensees.
23. Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which together shall constitute
but one agreement binding on the parties.
24. Captions. The captions of the sections of this Agreement are for
--------
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
-29-
<PAGE>
25. Bankruptcy Code. Peritus acknowledge that this Agreement is subject
---------------
to Section 365(n) of Title ii of the Bankruptcy Code. Peritus acknowledges that
if Peritus as a debtor in Possession or a trustee in bankruptcy in a case under
the Bankruptcy Code rejects the License Agreement or any part thereof any
Licensee may elect to retain its rights under the License Agreement as provided
in Section 365(n) of the Bankruptcy Code provided that such Licensee complies
with Section 365(n)(ii) of the Bankruptcy Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
a sealed instrument as of the day and year set forth above.
Peritus Software Services, Inc. Data Securities International, Inc.
[LICENSOR] [ESCROW AGENT]
Signature: Signature:
-------------------------- ---------------------------
By: By:
--------------------------------- ----------------------------------
Title: Title:
------------------------------ -------------------------------
-30-
<PAGE>
Exhibit A
---------
DESIGNATED REPRESENTATIVES
--------------------------
<TABLE>
<S> <C> <C>
Notices to Licensor Invoices should be addressed
should be addressed to: to:
Licensor: Peritus Software Services, Inc. Peritus Software Services, Inc.
Address: 304 Concord Road 304 Concord Road
Billerica, MA 01821 Billerica, MA 01821
Designated
Representative: Julian Chan John MacPhee
Telephone: (508) 670-2500 Ext. 596 (508) 670-2500 Ext. 268
Invoice inquiries and payments
Deposits and notices to Escrow to Escrow Agent should be
Agent should be addressed to: addressed to:
Escrow Agent: Data Securities International, Inc. Data Securities International, Inc.
Address: 955 Chesapeake Drive 9555 Chesapeake Drive
Suite 200 Suite 200
San Diego, CA 92123 San Diego, CA 92123
Designated
Representative:
------------------------------------
Telephone (619) 694-1900
</TABLE>
-31-
<PAGE>
Exhibit B
---------
DESCRIPTION OF DEPOSIT MATERIALS
--------------------------------
Deposit Account Number:
---------------------------
Account Name:
-------------------------------------------
Exhibit B Number:
--------------------------
Licensor, pursuant to a Source Code Escrow Agreement dated
________________, 19__ among Licensor, Licensee(s) and Escrow Agent (as defined
therein), hereby deposits the below described materials into the
above-referenced Deposit Account. The Deposit type is: (check space that
applies)
Initial Supplemental Replacement
- ----- Deposit ----- Deposit ----- Deposit
If Replacement then destroy Deposit _____ or return Deposit ______
If no Deposit type has been checked, the materials will be deemed to be
an Initial or Supplemental Deposit.
DEPOSIT MATERIALS
Name:_____________________________________ Version:________________
Date:________________________________________ Compiler:________________
Application:_______________________________________________________
Utilities needed:______________________________________________
Special operating instructions:_________________________________
Item Description Media Quantity
- ---------------- ----- --------
Licensor certifies that the above Accepted:
described materials have been
delivered/sent to Escrow Agent
By: By:
---------------------------------- --------------------------------
-32-
<PAGE>
Name: Name:
-------------------------------- ------------------------------
Title: Title:
------------------------------- -----------------------------
For: For:
--------------------------------- -------------------------------
Date: Date:
-------------------------------- ------------------------------
-33-
<PAGE>
Exhibit C
---------
COUNTERPART SIGNATURE PAGE TO SOURCE CODE ESCROW AGREEMENT
----------------------------------------------------------
The undersigned hereby agrees to become a party to that certain Source
Code Escrow Agreement dated November 15, 1996 (the "Agreement") among Licensor,
Licensees and Escrow Agent (as such terms are defined therein). From and after
the undersigned's execution and delivery and Licensor's acceptance of this
Counterpart, the undersigned shall be deemed to be a "Licensee" for all purposes
of the Agreement.
- ------------------------------------ Notices to Licensee should be addressed
Printed Name of Licensee to:
Licensee:
- ------------------------------------ ----------------------------
Signature of Licensee Address:
-----------------------------
-----------------------------
-----------------------------
By:
---------------------------------- Designated
Title: Representative:
------------------------------- -----------------------
Date: Telephone:
-------------------------------- ----------------------------
Invoices should be
addressed to:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Agreed and Accepted: Acknowledged:
Licensor: Peritus Software Escrow Agent: Data Securities
Services, Inc. International, Inc.
By: By:
---------------------------------- -----------------------------------
Title: Title:
------------------------------- --------------------------------
Date: Date:
-------------------------------- ---------------------------------
-34-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
AMENDMENT TO THE LICENSE AND ALLIANCE AGREEMENT-
AGREEMENT FOR THE PURCHASE OF A SPECIAL INVENTORY PACKAGE
Agreement made as of this 31 day of March, 1997 (the "Amendment"), by and
between Peritus Software Services, Inc., a Massachusetts corporation having its
principal place of business at 304 Concord Road, Billerica, MA 01821-3485
("Peritus"), and CSC Consulting, Inc. ("LICENSEE"), a Massachusetts corporation,
having its principal place of business at University Office Park, 29 Sawyer
Road, Waltham, Massachusetts 02154.
WHEREAS, Peritus and LICENSEE have previously executed an agreement so
that LICENSEE can market and deliver Peritus' Automate:2000
service; and
WHEREAS, LICENSEE and Peritus desire to modify the
aforementioned agreement.
NOW THEREFORE, in consideration of the following mutual promises contained
herein, the Parties agree in good faith to the following obligations and duties:
Section 1 - Definitions and Incorporated Definition:
1.1: The "SLA" herein shall refer to the agreements entitled
"License and Alliance Agreement" and "Schedule No. 1," both
dated May 1, 1996, and both signed by Peritus and LICENSEE.
The "SLA" shall also be understood to include any agreement
that succeeds or replaces the SLA referred to in the previous
sentence.
1.2: The terminology and definitions set forth in the SLA, if used
in this Amendment shall have the same meaning and
interpretation.
1.3: "Effective Date" herein shall be March 31, 1997.
1.4: An "Inventory Package" herein shall refer to a set amount of
LOC for which LICENSEE will pay the applicable royalty
hereunder.
1.5: "Inventory Package Royalty Fee" herein shall refer to the
applicable royalty fee for an Inventory Package. The Inventory
Package Royalty Fee is non-refundable, regardless of whether
LICENSEE provides the
-35-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Automate:2000(sm) service for the number of LOC for which the
Inventory Package applies.
1.6: "Product Technical Support" herein shall refer to the
technical support provided according to Attachment A to
---------------
Schedule No. 1 of the SLA.
-------------------------
Section 2 - Term:
2.1: Notwithstanding Section 7.2 of the SLA, in addition to the
----------------------
other terms of the SLA under which the SLA may be extended,
the SLA and this Amendment may and shall be further extended
to the extent necessary for LICENSEE to deplete the Inventory
Package referred to in Section 3.1 of this Amendment, or until
-----------------------------
April 30, 2000, provided however that any such extension that
results only pursuant to this Section 2.1 shall only be used
-----------
for the purpose of depleting the aforementioned Inventory
Package.
Section 3 - Inventory Package, Royalty Fees, PTA Fees and Payment Terms:
3.1: Pursuant to this Amendment, LICENSEE hereby purchases an
Inventory Package that entitles LICENSEE to provide the
Automate:2000(sm) service for ********************** in
consideration of which LICENSEE shall pay to Peritus the
applicable Inventory Package Royalty Fee in the amount of ***
*************************************************************
*********************** which is due as of the Effective Date
and shall be paid according to the schedule as set forth in
Section 3.3 of this Amendment.
-----------------------------
3.2: The Inventory Package Royalty Fee shall be paid to Peritus in
twelve equal installments, each installment being due on the
last day of each calendar month, beginning with the first
installment being due as of March 31, 1997. Payment to Peritus
of an installment due to Peritus must be made within 30 days
of receipt of the applicable invoice, such invoice to be
considered valid as of the latter of the date of receipt of
the invoice or the date on which the applicable installment is
due.
Section 4 - General Provisions:
-36-
<PAGE>
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
4.1: Except as expressly set forth above, the SLA remains in force
and effect to the same extent to which it was in force and
effect prior to the Effective Date of this Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their duly authorized representatives.
CSC Consulting, Inc. Peritus Software Services, Inc.
(LICENSEE)
By: /s/ Tom McAndrew By: /s/ Allen K. Deary
---------------------------------- ---------------------------------
Name: Name:
-------------------------------- -------------------------------
Title: Title:
------------------------------- ------------------------------
-37-
<PAGE>
EXECUTION COPY
--------------
EXHIBIT 10.37
-------------
AGREEMENT AND PLAN OF MERGER
by and among
PERITUS SOFTWARE SERVICES, INC.,
VISTA TECHNOLOGIES INCORPORATED
and
STOCKHOLDERS
listed on Schedule I
----------
January 29, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. The Merger and Related Matters......................................... 2
1.01 Merger.......................................................... 2
1.02 Stockholder Approval............................................ 2
1.03 Effective Date.................................................. 2
1.04 Capital Stock of Vista.......................................... 2
1.05 Capital Stock of Peritus........................................ 3
1.06 Stock Certificates.............................................. 4
1.07 Succession...................................................... 4
1.08 Article of Organization and By-Laws............................. 4
1.09 Directors and Officers.......................................... 5
1.10 No Further Rights............................................... 5
1.11 Closing of Transfer Books....................................... 5
1.12 Stockholders' Representative.................................... 5
2. Representations and Warranties of the Stockholders..................... 7
3. Representations and Warranties of Vista................................ 8
3.01 Organization.................................................... 8
3.02 Capitalization of Vista......................................... 8
3.03 No Subsidiaries................................................. 9
3.04 Authorization................................................... 9
3.05 Financial Statements............................................ 9
3.06 Absence of Undisclosed Liabilities.............................. 10
3.07 Litigation...................................................... 10
3.08 Insurance....................................................... 11
3.09 Personal Property............................................... 11
3.10 Intangible Property............................................. 12
3.11 Leases.......................................................... 13
3.12 Real Estate..................................................... 14
3.13 Accounts Receivable............................................. 14
3.14 Tax Matters..................................................... 14
3.15 Books and Records............................................... 15
3.16 Contracts and Commitments....................................... 16
3.17 Compliance with Agreements and Laws............................. 19
3.18 Employee Relations.............................................. 19
3.19 Employee Benefit Plans.......................................... 20
3.20 Absence of Certain Changes or Events............................ 24
3.21 Customers....................................................... 25
3.22 Suppliers....................................................... 26
3.23 Warranty and Product Liability Claims........................... 26
3.24 Prepayments and Deposits........................................ 26
3.25 Indebtedness to and from Officers, Directors and Stockholders... 26
3.26 Banking Facilities.............................................. 27
3.27 Powers of Attorney and Suretyships.............................. 27
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C>
3.28 Conflicts of Interest........................................... 27
3.29 Regulatory Approvals............................................ 28
3.30 Disclosure...................................................... 28
4. Representations and Warranties of Peritus.............................. 28
4.01 Organization and Authority...................................... 28
4.02 Capitalization of Peritus....................................... 29
4.03 Authorization................................................... 29
4.04 Regulatory Approvals............................................ 30
4.05 Disclosure...................................................... 30
5. Access to Information; Public Announcements............................ 30
5.01 Access to Management, Properties and Records.................... 30
5.02 Confidentiality................................................. 31
5.03 Public Announcements............................................ 31
6. Pre-Effective Covenants of Vista....................................... 31
6.01 Conduct of Business............................................. 32
6.02 Absence of Material Changes..................................... 32
6.03 Delivery of Interim Financial Statements........................ 34
6.04 Communications with Customers and Suppliers..................... 34
6.05 Compliance with Laws............................................ 34
6.06 Continued Truth of Representations and Warranties............... 34
6.07 Continuing Obligation to Inform................................. 34
6.08 Exclusive Dealing............................................... 35
6.09 Reports, Taxes.................................................. 35
6.10 Termination of Option Plans..................................... 35
7. Best Efforts to Obtain Satisfaction of Conditions...................... 35
8. Conditions to Obligations of Peritus................................... 36
8.01 Continued Truth of Representations and Warranties
of Vista; Compliance with Covenants and Obligations............. 36
8.02 Performance by Vista............................................ 36
8.03 Governmental Approvals.......................................... 36
8.04 Stockholder Approval............................................ 36
8.05 Consent of Lenders, Lessors and Other Third Parties............. 37
8.06 Adverse Proceedings............................................. 37
8.07 Opinion of Counsel.............................................. 37
8.08 Update.......................................................... 37
8.09 Employment Contracts............................................ 38
8.10 Cash Available for Working Capital Purposes..................... 38
8.11 Repayment of Indebtedness....................................... 38
8.12 Trade Payables.................................................. 38
8.13 Deliveries...................................................... 39
8.14 Approval of Merger Documents.................................... 40
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C>
9. Conditions to Obligations of Vista...................................... 40
9.01 Continued Truth of Representations and Warranties
of Peritus; Compliance with Covenants and
Obligations...................................................... 40
9.02 Corporate Proceedings............................................ 40
9.03 Governmental Approvals........................................... 40
9.04 Consents of Lenders, Lessors and Other Third Parties............. 40
9.05 Adverse Proceedings.............................................. 41
9.06 Opinion of Counsel............................................... 41
9.07 Deliveries....................................................... 41
10. Survival of Representations and Warranties............................. 42
10.01 Survival of Representations and Warranties of Vista.............. 42
10.02 Survival of Representations and Warranties of Peritus............ 42
11. Termination of Agreement; Option to Proceed; Damages................... 42
11.01 Termination by Lapse of Time.................................... 42
11.02 Termination by Agreement of the Parties......................... 42
11.03 Termination by Reason of Breach................................. 43
11.04 Option to Proceed............................................... 43
11.05 Availability of Remedies at Law................................. 44
12. Dispute Resolution..................................................... 44
12.01 General......................................................... 44
12.02 Consent of the Parties.......................................... 44
12.03 Arbitration..................................................... 44
13. Brokers................................................................ 46
13.01 For Vista....................................................... 46
13.02 For Peritus..................................................... 46
14. Notices................................................................ 46
15. Successors and Assigns................................................. 47
16. Entire Agreement; Attachments.......................................... 47
17. Severability........................................................... 47
18. Investigation of the Parties........................................... 48
19. Expenses............................................................... 48
20. Legal Fees............................................................. 48
</TABLE>
- iii -
<PAGE>
<TABLE>
<S> <C>
21. Further Assurances.................................................... 48
22. Amendment............................................................. 48
23. Governing Law......................................................... 49
24. Section Headings; Number; Gender...................................... 49
25. Counterparts.......................................................... 49
</TABLE>
- iv -
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement and Plan of Merger"),
dated this 29th day of January, 1996, pursuant to Section 79 of Chapter 156B of
Massachusetts General Laws (the "Massachusetts Business Corporation Law") and
Section 5/11.35 of Chapter 805 of Illinois Compiled Statutes (the "Illinois
Business Corporation Law"), by and among Peritus Software Services, Inc., a
Massachusetts corporation having its principal place of business at 304 Concord
Road, Billerica, Massachusetts ("Peritus"), Vista Technologies Incorporated, an
Illinois corporation having its principal place of business at Two Woodfield
Lake, 1100 Woodfield Lake, Suite 437, Schaumburg, Illinois ("Vista"), and the
stockholders listed on Schedule I attached hereto (each, a "Stockholder" and
----------
collectively, the "Stockholders").
WITNESSETH:
WHEREAS, Peritus is a corporation duly organized and existing under the
laws of the Commonwealth of Massachusetts and is authorized to issue 3,760,000
shares of Class A Voting Common Stock, no par value (the "Peritus Class A Common
Stock"), of which 2,225,815 shares are issued and outstanding as of the date
hereof, and 40,000 shares of Class B Non-Voting Common Stock, no par value (the
"Peritus Class B Common Stock"), of which 39,715 shares are issued and
outstanding as of the date hereof;
WHEREAS, Vista is a corporation duly organized and existing under the laws
of the State of Illinois and is authorized to issue (i) 2,000,000 shares of
Class A Common Stock, no par value (the "Vista Class A Common Stock"), of which
138,760 shares are issued and outstanding as of the date hereof, (ii) 200,000
shares of Class B Common Stock, no par value (the "Vista Class B Common Stock"),
of which 31,240 shares are issued and outstanding as of the date hereof, and
(iii) 1,000,000 shares of Class C Common Stock, no par value (the "Vista Class C
Common Stock"), of which 36,000 shares are issued and outstanding as of the date
hereof;
WHEREAS, the Stockholders own all of the issued and outstanding capital
stock of Vista;
WHEREAS, Peritus desires that Vista be merged into Peritus;
WHEREAS, Vista desires to merge itself into Peritus; and
WHEREAS, the Boards of Directors of Peritus and Vista have approved and
adopted this Agreement and Plan of Merger.
<PAGE>
NOW THEREFORE, in consideration of the foregoing premises and the
undertakings herein contained and for other good valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Merger and Related Matters
------------------------------
1.01 Merger. As soon as practicable after the satisfaction of the
-------
conditions set forth in Sections 8 and 9 hereof, Vista shall be merged with and
into Peritus pursuant to the Massachusetts Business Corporation Law and the
Illinois Business Corporation Law by delivering to the Secretary of the
Commonwealth of the Commonwealth of Massachusetts and to the Secretary of State
of the State of Illinois the articles of merger, together with such other
documents and certificates as may be required by the Massachusetts Business
Corporation Law and the Illinois Business Corporation Law, each in such form or
forms as may be required by, and executed and acknowledged in accordance with,
the relevant provisions of the Massachusetts Business Corporation Law and the
Illinois Business Corporation Law (such documents being collectively referred to
as the "Merger Documents"), and shall make all other filings and recordings
required by the Massachusetts Business Corporation Law and the Illinois Business
Corporation Law in connection with the Merger. Peritus shall survive the merger
herein contemplated and shall continue to be governed by the laws of the
Commonwealth of Massachusetts. The separate corporate existence of Vista shall
cease forthwith upon the Effective Date (as defined below). The merger of Vista
into Peritus shall herein be referred to as the "Merger."
1.02 Stockholder Approval. As soon as practicable after the
--------------------
execution of this Agreement and Plan of Merger, each of Peritus and Vista shall,
if necessary under the Massachusetts Business Corporation Law or the Illinois
Business Corporation Law, submit this Agreement and Plan of Merger to their
respective stockholders for approval.
1.03 Effective Date. The Merger shall be effective upon the filing
--------------
of articles of merger with the Secretary of the Commonwealth of the Commonwealth
of Massachusetts, which filing shall be made as soon as practicable after all
required stockholder approvals have been obtained. The time of such
effectiveness shall herein be referred to as the "Effective Date."
1.04 Capital Stock of Vista.
----------------------
(a) Subject to the other provisions of this Subsection 1.04,
on the Effective Date, by virtue of the Merger and without any action on the
part of the holder thereof, each
-2-
<PAGE>
share of the capital stock of Vista (whether of Vista Class A Common Stock,
Vista Class B Common Stock, or Vista Class C Common Stock, and whether voting or
non-voting) issued and outstanding immediately prior thereto shall cease to
exist and shall be changed and converted into 0.5437 fully paid and non-
assessable shares of the Peritus Class A Common Stock (such ratio, the
"Conversion Ratio").
(b) Notwithstanding the provisions of paragraph (a) of this
Subsection 1.04, shares of the capital stock of Vista held by a holder who, in
accordance with Section 5/11.65 et seq. of the Illinois Business Corporation Law
-- ---
has asserted and perfected his right to dissent and obtain payment for such
shares and has not effectively withdrawn or lost such right, shall not be
converted into shares of Peritus Class A Common Stock unless such holder
withdraws or otherwise loses his right to obtain payment for such shares. If
after the Effective Date such holder withdraws or loses his right to receive
payment for his shares of the capital stock of Vista, such shares shall be
treated as if they had been converted as of the Effective Date into shares of
Peritus Class A Common Stock pursuant to the provisions of paragraph (a) of this
Subsection 1.04.
(c) Vista shall give Peritus prompt notice of any demands for
payment, or notices of intent to demand payment, received by Vista with respect
to any shares of the capital stock of Vista in connection with the Merger, and
Peritus shall have the right to participate in all negotiations and proceedings
with respect to such demands. Vista shall not, except with the prior written
consent of Peritus or as otherwise required by law, make any payment with
respect to, or settle or offer to settle, any such demand.
(d) Due to the operation of rounding, as provided in paragraph
(b) of Subsection 1.06 hereof, of the number of shares of Peritus Class A Common
Stock receivable pursuant to the Merger by holders of the capital stock of
Vista, neither certificates nor scrip for fractional shares shall be issued to
any person or entity pursuant to the Merger, and no holder of any fractional
share of the capital stock of Vista or a fractional share interest therein shall
be entitled to any voting or other rights of a holder of shares of capital stock
of Peritus.
1.05 Capital Stock of Peritus. On the Effective Date, by virtue of
------------------------
the Merger and without any action on the part of the holder thereof, each share
of Peritus Class A Common Stock and Peritus Class B Common Stock issued and
outstanding immediately prior thereto shall remain issued and outstanding and
each share of Peritus Class A Common Stock and Peritus Class B Common Stock
-3-
<PAGE>
held in the treasury of Peritus immediately prior thereto (if any) shall remain
in the treasury.
1.06 Stock Certificates.
------------------
(a) On and after the Effective Date, all of the outstanding
certificates which prior to that time represented shares of capital stock of
Vista shall be deemed for all purposes to evidence ownership of and to represent
solely the shares of Peritus Class A Common Stock into which the shares of the
capital stock of Vista represented by such certificates have been converted as
herein provided. The registered owner on the books and records of Peritus of any
such outstanding stock certificate shall, until such certificate shall have been
surrendered for conversion or transfer or otherwise accounted for to Peritus,
have and be entitled to exercise any voting and other rights with respect to and
to receive any dividend and other distributions upon the shares of Peritus Class
A Common Stock evidenced by such outstanding certificate as above provided.
(b) Notwithstanding the provisions of paragraph (a) of this
Subsection 1.06, (i) no holder of shares of capital stock of Vista shall be
entitled to receive any certificates or scrip for fractional shares of Peritus
Class A Common Stock, (ii) the number of shares of Peritus Class A Common Stock
receivable by any holder of shares of capital stock of Vista pursuant to the
Merger as calculated in accordance with paragraph (a) of Subsection 1.04 hereof
shall, unless it is a whole number of such shares of Peritus Class A Common
Stock, be rounded down to the nearest whole number of such shares, and (iii) no
fractional shares of, or fractional share interests in, Peritus Class A Common
Stock shall be issued to any person or entity pursuant to the Merger.
1.07 Succession. On the Effective Date, Peritus shall succeed to
----------
all of the rights, privileges, debts, liabilities, powers and property of Vista
in the manner of and as more fully set forth in Section 80 of the Massachusetts
Business Corporation Law and Section 5/11.50 of the Illinois Business
Corporation Law. Without limiting the foregoing, upon the Effective Date, all of
the estate, property, rights, privileges, powers, franchises, patents,
trademarks, licenses, registrations and other assets of every kind and
description of Vista shall be transferred to, vested in and devolved upon
Peritus without further act or deed and all property, real, personal and mixed,
rights, and every other interest of Vista and Peritus, and all the debts due on
whatever account to either of them, as well as stock subscriptions and other
choses in action belonging to either of them, shall be as effectively the
property of Peritus as they were of Vista and Peritus, respectively.
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<PAGE>
1.08 Article of Organization and By-Laws. The Articles of
-----------------------------------
Organization of Peritus in effect on the Effective Date shall continue to be the
Articles of Organization of Peritus until further amended in accordance with the
provisions thereof and applicable law. The By-laws of Peritus in effect on the
Effective Date shall continue to be the By-laws of Peritus until amended in
accordance with the provisions thereof and applicable law.
1.09 Directors and Officers. The members of the Board of Directors
----------------------
and the officers of Peritus on the Effective Date shall continue in office until
the expiration of their respective terms of office and until their successors
have been elected and qualified.
1.10 No Further Rights. From and after the Effective Date, no
-----------------
shares of capital stock of Vista shall be deemed to be outstanding, and holders
of certificates therefor shall cease to have any rights with respect thereto
except as provided herein or by law.
1.11 Closing of Transfer Books. On the Effective Date, the stock
-------------------------
transfer books of Vista shall be closed and no transfer of shares of capital
stock of Vista shall thereafter be made. If, after the Effective Date,
certificates therefor are presented to Peritus, they shall be cancelled and
exchanged for shares of Peritus Class A Common Stock in accordance with
Subsection 1.04, subject to applicable law in the case of any dissenting shares
of capital stock of Vista.
1.12 Stockholders' Representative.
----------------------------
(a) In order to efficiently administer the provisions of this
Agreement (including, without limitation, Subsection 11.04 and Section 12
hereof) and all other documents and instruments executed and delivered, or
otherwise furnished, by the Stockholders in connection herewith (including,
without limitation, the escrow agreement in the form of Exhibit A attached
---------
hereto (the "Escrow Agreement")), the Stockholders hereby designate Adarsh K.
Arora as their representative (the "Stockholders' Representative").
(b) The Stockholders hereby authorize the Stockholders'
Representative (i) to make all decisions and to take all action necessary to be
made or taken by or on behalf of the Stockholders under this Agreement or the
Escrow Agreement, (ii) to give and receive all notices required or permitted to
be given under this Agreement or the Escrow Agreement, and (iii) to take any and
all additional action as is contemplated to be taken by or
-5-
<PAGE>
on behalf of the Stockholders by the terms of this Agreement or the Escrow
Agreement.
(c) In the event that the Stockholders' Representative dies,
becomes unable to perform his responsibilities hereunder or resigns from such
position, Stockholders holding, prior to the Effective Date, a majority of the
shares of capital stock of Vista as set forth on Schedule I attached hereto
----------
shall select another representative to fill such vacancy, and such substituted
representative shall be deemed to be the Stockholders' Representative for all
purposes of this Agreement and the Escrow Agreement.
(d) All decisions and actions by the Stockholders'
Representative in connection with this Agreement or the Escrow Agreement shall
be binding upon all of the Stockholders, and no Stockholder shall have the right
to object, dissent, protest or otherwise contest the same.
(e) By their execution of this Agreement, the Stockholders
agree that:
(i) Peritus shall be able to rely conclusively on the
instructions and decisions of the Stockholders' Representative as to any actions
required or permitted to be taken by the Stockholders' Representative hereunder
or under the Escrow Agreement, and no party hereunder shall have any cause of
action against Peritus for any action taken by Peritus in reliance upon the
instructions or decisions of the Stockholders' Representative;
(ii) all actions, decisions and instructions of the
Stockholders' Representative shall be conclusive and binding upon all of the
Stockholders and no Stockholder shall have any cause of action against the
Stockholders' Representative for any action taken, decision made or instruction
given by the Stockholders' Representative under this Agreement or under the
Escrow Agreement, except for fraud or willful breach of this Agreement or the
Escrow Agreement by the Stockholders' Representative;
(iii) the provisions of this Subsection 1.12 are
independent and severable, are irrevocable and coupled with an interest and
shall be enforceable notwithstanding any rights or remedies that any Stockholder
may have in connection with the transactions contemplated by this Agreement or
the Escrow Agreement;
(iv) remedies available at law for any breach of the
provisions of this Subsection 1.12 are inadequate;
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<PAGE>
therefore, Peritus and Vista shall be entitled to temporary and permanent
injunctive relief without the necessity of proving damages if either Peritus or
Vista brings an action to enforce the provisions of this Subsection 1.12; and
(v) the provisions of this Subsection 1.12 shall be
binding upon the executors, heirs, legal representatives and successors of each
Stockholder, and any references in this Agreement or the Escrow Agreement to a
Stockholder or the Stockholders shall mean and include the successors to the
Stockholders' rights hereunder, whether pursuant to testamentary disposition,
the laws of descent and distribution or otherwise.
2. Representations and Warranties of the Stockholders
--------------------------------------------------
As of the date hereof and as of the Effective Date, each Stockholder
severally represents and warrants to Peritus as follows:
(a) Such Stockholder has good and marketable title to the
shares of capital stock of Vista listed on Schedule I attached hereto opposite
----------
such Stockholder's name, free and clear of any and all covenants, conditions,
restrictions, voting trust arrangements, liens, charges, encumbrances, options
and adverse claims or rights whatsoever. Schedule I attached hereto sets forth
----------
a true and correct description of all shares of capital stock of Vista owned by
such Stockholder, both of record and beneficially.
(b) Except as set forth on Schedule 2 attached hereto, such
----------
Stockholder is not a party to, subject to or bound by any agreement or any
judgment, order, writ, prohibition, injunction or decree of any court or other
governmental body which would prevent the execution, delivery or performance by
such Stockholder of this Agreement or the Escrow Agreement. Schedule 2 attached
----------
hereto sets forth a true, correct and complete list of all consents and
approvals of third parties that are required in connection with the consummation
by any Stockholder of the transactions contemplated by this Agreement or the
Escrow Agreement.
(c) No broker or finder has acted for such Stockholder in
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fee or other
commissions in respect of such transactions based upon agreements, arrangements
or understandings made by or on behalf of such Stockholder.
(d) This Agreement has been, and prior to the Effective Date
the Escrow Agreement will be, duly executed and
-7-
<PAGE>
delivered by such Stockholder and constitutes (or will constitute) a valid and
binding obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms.
3. Representations and Warranties of Vista
---------------------------------------
As of the date hereof and as of the Effective Date, Vista represents
and warrants to Peritus that:
3.01 Organization.
------------
Vista is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois, and has all requisite power
and authority (corporate and other) to own its properties, to carry on its
business as now being conducted, to execute and deliver this Agreement and Plan
of Merger and the agreements contemplated herein, and to consummate the Merger
and the other transactions contemplated hereby and thereby. Vista is duly
qualified to do business and in good standing in all jurisdictions in which its
ownership of property or the character of its business requires such
qualification. Certified copies of the Articles of Incorporation and Bylaws of
Vista, as amended to date, have been previously delivered to Peritus, are
complete and correct, and no amendments have been made thereto or have been
authorized since the date thereof.
3.02 Capitalization of Vista.
-----------------------
Vista's authorized capital stock consists of (i) 2,000,000 shares of
the Vista Class A Common Stock, of which 138,760 shares are issued and
outstanding as of the date hereof, (ii) 200,000 shares of the Vista Class B
Common Stock, of which 31,240 shares are issued and outstanding as of the date
hereof, and (iii) 1,000,000 shares of the Vista Class C Common Stock, of which
36,000 shares are issued and outstanding as of the date hereof. All of such
shares are held of record and beneficially by the Stockholders in amounts
specified on Schedule I attached hereto opposite their respective names. All
----------
such issued and outstanding shares of capital stock of Vista have been and on
the Effective Date will be duly and validly issued and are, or will be on such
date, fully paid and non-assessable. Except as set forth in Schedule 3.02
-------------
attached hereto, there are not, and on the Effective Date there will not be,
outstanding (i) any options, warrants or other rights to purchase from Vista any
capital stock of Vista; (ii) any securities convertible into or exchangeable for
shares of such stock; or (iii) any other commitments of any kind for the
issuance of additional shares of capital stock or options, warrants or other
securities of Vista. No shares of capital stock of Vista are held in the
treasury of Vista.
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<PAGE>
3.03 No Subsidiaries. Vista does not have, and has not since the
---------------
date of its incorporation had, directly or indirectly, any equity interest in
any other corporation, partnership, joint venture or other entity.
3.04 Authorization.
-------------
Except for approval by the stockholders of Vista, which approval shall
be unanimous (regardless of whether unanimity is required by the Illinois
Business Corporation Law) and shall be obtained prior to the Effective Date, the
execution and delivery by Vista of this Agreement and Plan of Merger and the
consummation by Vista of the Merger and the other transactions contemplated
hereby have been duly authorized by all requisite corporate action. This
Agreement and Plan of Merger has been duly executed by Vista. This Agreement and
Plan of Merger and all other agreements and obligations entered into and
undertaken in connection with the Merger and the other transactions contemplated
hereby to which Vista is a party constitute the valid and legally binding
obligations of Vista, enforceable against Vista in accordance with their
respective terms. The execution, delivery and performance by Vista of this
Agreement and Plan of Merger and the agreements provided for herein, and the
consummation by Vista of the transactions contemplated hereby and thereby, will
not, with or without the giving of notice or the passage of time or both, (a)
violate the provisions of any law, rule or regulation applicable to Vista; (b)
violate the provisions of the Articles of Incorporation or Bylaws of Vista; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of Vista pursuant to, any indenture, mortgage, deed of
trust or other instrument or agreement to which Vista is a party or by which
Vista or any of its properties is or may be bound. Schedule 3.04 attached hereto
-------------
sets forth a true, correct and complete list of all consents and approvals of
third parties that are required in connection with the consummation by Vista of
the Merger and the other transactions contemplated by this Agreement and Plan of
Merger.
3.05 Financial Statements.
--------------------
Except as may be set forth on Schedule 3.05 attached hereto:
-------------
(a) Vista has previously delivered to Peritus the unaudited
balance sheet of Vista as of December 31, 1995 (the "Current Balance Sheet") and
the related profit and loss statement
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<PAGE>
of Vista for the 12-month period then ended (collectively, the "Current
Financial Statements"). The Current Financial Statements and the Interim
Financial Statements (as defined below) to be delivered pursuant to Subsection
6.03 hereof (collectively, the "Financial Statements") have been (or, in the
case of the Interim Financial Statements, will be) prepared in accordance with
generally accepted accounting principles applied consistently with past
practices and have been (or will be) certified by Vista's chief financial
officer. The date of the Current Balance Sheet is hereinafter referred to as the
"Balance Sheet Date."
(b) The Financial Statements fairly present, as of their
respective dates, the financial condition, retained earnings, assets and
liabilities of Vista and the results of operations of Vista's business for the
periods indicated. With respect to contracts and commitments for the sale of
goods or the provision of services by Vista, the Financial Statements contain
and reflect adequate reserves, which are consistent with previous reserves
taken, for all reasonably anticipated material losses and costs and expenses.
The amounts shown as accrued for current and deferred income and other taxes in
the Financial Statements are sufficient for the payment of all accrued and
unpaid federal, state and local income taxes, interest, penalties, assessments
or deficiencies applicable to Vista, whether disputed or not, for the applicable
period then ended and periods prior thereto.
3.06 Absence of Undisclosed Liabilities.
----------------------------------
Except as and to the extent (a) reflected and reserved against in the
Current Balance Sheet, (b) set forth on Schedule 3.06 attached hereto, or (c)
-------------
incurred in the ordinary course of business after the Balance Sheet Date and not
material in amount, either individually or in the aggregate, Vista has no
liability or obligation, secured or unsecured, whether accrued, absolute,
contingent, unasserted or otherwise, which is material to the condition
(financial or otherwise) or the assets, properties, business or prospects of
Vista. For purposes of this Subsection 3.06, "material" means any amount in
excess of $2,000.
3.07 Litigation.
----------
Except as set forth on Schedule 3.07 attached hereto, (a) there is no
-------------
action, suit or proceeding to which Vista is a party (either as a plaintiff or
defendant) pending or, to the best knowledge of Vista or any Stockholder,
threatened before any court or governmental agency, authority, body or
arbitrator and, to the best knowledge of Vista or any Stockholder, there is no
basis for any such action, suit or proceeding; (b) neither Vista nor, to the
best knowledge of Vista, any Stockholder or any officer, director or employee of
Vista has been permanently or temporarily enjoined
-10-
<PAGE>
by any order, judgment or decree of any court or any governmental agency,
authority or body from engaging in or continuing any conduct or practice in
connection with the business, assets, or properties of Vista; and (c) there is
not in existence on the date hereof any order, judgment or decree of any court,
tribunal or agency enjoining or requiring Vista to take any action of any kind
with respect to its business, assets or properties.
3.08 Insurance.
---------
Since January 1, 1996, Vista has not maintained any insurance
policies. Vista has no outstanding claims or any dispute with any previous
insurance carrier of Vista regarding claims, settlements or premiums and has not
failed to give any notice or present any claim under any insurance policy
maintained by Vista prior to January 1, 1996 in due and timely fashion.
3.09 Personal Property.
-----------------
Schedule 3.09 attached hereto sets forth (i) a true, correct and
-------------
complete list of all items of tangible personal property (A) owned by Vista as
of the date hereof having either a net book value per unit or an estimated fair
market value per unit in excess of $500, or (B) not owned by Vista but in the
possession of or used or useful in the business of Vista and having rental
payments therefor in excess of $500 per month or $6,000 per year (collectively,
the "Personal Property"); and (ii) a description of the owner of, and any
agreement relating to the use of, each item of Personal Property not owned by
Vista and the circumstances under which such Property is used. Except as
disclosed in Schedule 3.09:
-------------
(a) Vista has good and marketable title to each item of
Personal Property owned or purported to be owned by Vista free and clear of all
liens, leases, encumbrances, claims under bailment and storage agreements,
equities, conditional sales contracts, security interests, charges and
restrictions, except for liens, if any, for personal property taxes not due;
(b) no Stockholder and no officer, director or employee of
Vista, nor any spouse, child or other relative or affiliate thereof, owns
directly or indirectly, in whole or in part, any of the Personal Property
described in Schedule 3.09;
-------------
(c) each item of Personal Property not owned by Vista is in
such condition that upon the return of such property to its owner in its present
condition at the end of the relevant lease term or as otherwise contemplated by
the applicable agreement between Vista and the owner or lessor thereof, the
obligations of Vista to such owner or lessor will be discharged;
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<PAGE>
(d) the Personal Property is in good operating condition and
repair, normal wear and tear excepted, is currently used by Vista in the
ordinary course of its business and normal maintenance has been consistently
performed with respect to the Personal Property; and
(e) Vista owns or otherwise have the right to use all of the
Personal Property now used or useful in the operation of its business or the use
of which is necessary for or useful in the performance of any material contract,
letter of intent or proposal to which Vista is a party.
3.10 Intangible Property.
-------------------
Schedule 3.10 attached hereto sets forth: (i) a true, correct and
-------------
complete list and, where appropriate, a description of, all items of intangible
property owned by, or used or useful in connection with the business of, Vista,
including, but not limited to, trade secrets, know-how, any other confidential
information of Vista, United States and foreign patents, trade names, trademarks
and service marks, trade name and trademark registrations, copyrights and
copyright registrations, and applications for any of the foregoing (the
"Intangible Property"); and (ii) a true, correct and complete list of all
licenses or similar agreements or arrangements to which Vista is a party, either
as licensee or licensor, with respect to the Intangible Property. Except as
otherwise disclosed in Schedule 3.10:
-------------
(a) Vista is the sole and exclusive owner of all right, title
and interest in and to the Intangible Property and all designs, permits, labels
and packages used on or in connection therewith, free and clear of all liens,
security interests, charges, encumbrances, equities or other adverse claims;
(b) Vista has the right and authority to use, and Peritus will
have the right and authority to use after the Effective Date, the Intangible
Property in connection with the conduct of its business in the manner presently
conducted, and such use or continuing use does not and will not conflict with,
infringe upon or violate any rights of any other person, corporation or entity;
(c) neither Vista nor any of the Stockholders has received
notice of, or has any knowledge of any basis for, a pleading or threatened
claim, interference action or other judicial or adversarial proceeding against
Vista that any of the operations, activities, products, services or publications
of Vista or any of its customers or distributors infringes or will infringe any
patent, trademark, trade name, copyright, trade secret or other property right
of a third party, or that it is
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<PAGE>
illegally or otherwise using the trade secrets, formulae or property rights of
others;
(d) there are no outstanding, nor to the best knowledge of
Vista or any Stockholder, threatened disputes or other disagreements with
respect to any licenses or similar agreements or arrangements described in
Schedule 3.10 or with respect to infringement by a third party of any of the
- -------------
Intangible Property;
(e) the Intangible Property owned or licensed by Vista is
sufficient to conduct Vista's business as presently conducted;
(f) Vista has taken all steps reasonably necessary to protect
its right, title and interest in and to the Intangible Property and the
continued use of the Intangible Property;
(g) no Stockholder and no officer, director or employee of
Vista, nor any spouse, child or other relative or affiliate thereof, owns
directly or indirectly, in whole or in part, any of the Intangible Property; and
(h) neither Vista nor any Stockholder has any knowledge that
any third party is infringing, or will threaten to infringe, upon or otherwise
violate any of the Intangible Property in which Vista has ownership rights.
3.11 Leases.
------
Schedule 3.11 attached hereto sets forth (a) a true, correct and
-------------
complete list as of the date hereof of all leases of real property, identifying
separately each ground lease, to which Vista is a party (collectively, the
"Leases"). True, correct and complete copies of all Leases and all amendments,
modifications and supplemental agreements thereto have previously been delivered
by Vista to Peritus. The Leases are in full force and effect, are binding and
enforceable against each of the parties thereto in accordance with their
respective terms and, except as set forth on Schedule 3.11, have not been
-------------
modified or amended since the date of delivery to Peritus. No party to any
Lease has sent written notice to the other claiming that such party is in
default thereunder and that such default remains uncured. Except as set forth
on Schedule 3.11, there has not occurred any event which would constitute a
-------------
breach of or default in the performance of any covenant, agreement or condition
contained in any Lease, nor has there occurred any event which with the passage
of time or the giving of notice or both would constitute such a breach or
material default. Vista is not obligated to pay any leasing or
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<PAGE>
brokerage commission relating to any Lease and, except as set forth on Schedule
--------
3.11, will not have any obligation to pay any leasing or brokerage commission
- ----
upon the renewal of any Lease. Except as set forth on Schedule 3.11, no
-------------
construction, alteration or other leasehold improvement work with respect to any
of the Leases remains to be paid for or to be performed by Vista. The Financial
Statements contain adequate reserves to provide for the restoration of the
property subject to the Leases at the end of the respective Lease terms, to the
extent required by the Leases.
3.12 Real Estate.
-----------
Vista does not own, and since the date of its incorporation has not
owned, directly or indirectly, any real estate.
3.13 Accounts Receivable.
-------------------
Schedule 3.13 attached hereto sets forth a true, correct and complete
-------------
list of the accounts and notes receivable of Vista (the "Accounts Receivable"),
including the aging thereof as of the date hereof. All Accounts Receivable
arose out of the sales of goods or services in the ordinary course of business
and are collectible in the face value thereof within 60 days after the date of
invoice, using normal collection procedures, net of the reserve for doubtful
accounts set forth thereon, which reserve is adequate and was calculated in
accordance with generally accepted accounting principles consistently applied.
3.14 Tax Matters.
-----------
(a) Except as set forth on Schedule 3.14 attached hereto:
-------------
(i) Within the times and in the manner prescribed by
law, Vista has filed all federal, state and local tax returns and all tax
returns for foreign countries, provinces and other governing bodies having
jurisdiction to levy taxes upon them which are required to be filed;
(ii) Vista has paid all taxes, interest, penalties,
assessments and deficiencies which have become due or which have been claimed to
be due, including, without limitation, income, franchise, real estate, sales and
withholding taxes and other employee benefits, taxes and imposts;
(iii) To the best knowledge of Vista or any of the
Stockholders, all tax returns filed by Vista for the taxable years ending
December 31, 1989 through December 31, 1994 constitute complete and accurate
representations of the respective
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<PAGE>
tax liabilities of Vista for such years and accurately set forth all items (to
the extent required to be included or reflected in such returns) relevant to
their future tax liabilities, including the tax bases of their properties and
assets;
(iv) Vista has not waived or extended any applicable
statute of limitations relating to the assessment of federal, state, local or
foreign taxes;
(v) No examinations of the federal, state, local or
foreign tax returns of Vista is currently in progress nor, to the best knowledge
of Vista or any of the Stockholders, threatened and no deficiencies have been
asserted or assessed against Vista as a result of any audit by the Internal
Revenue Service or any state or local taxing authority and no such deficiency
has been proposed or threatened;
(vi) Vista has not filed a consent pursuant to Section
341(f) of the Internal Revenue Code of 1986, as amended (the "Code") relating to
collapsible corporations, nor has Vista agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as such term is defined
in Section 341(f)(4) of the Code); and
(vii) Since December 31, 1990, Vista has not participated
in or cooperated with an international boycott, within the meaning of Section
999 of the Code, nor has Vista had operations which are or may hereafter become
reportable under Section 999 of the Code.
(b) Schedule 3.14 attached hereto sets forth those taxable
-------------
years for which the tax returns of Vista have been reviewed or audited by
applicable federal, state, local and foreign taxing authorities and those tax
years for which said tax returns have received clearances or other indications
of approval from applicable federal, state, local and foreign taxing
authorities. To the best knowledge of Vista or any of the Stockholders, no issue
or issues have been raised in connection with any prior or pending review or
audit of said federal, state, local or foreign tax returns which Vista or any of
the Stockholders reasonably believes may be expected to be raised in the future
by such taxing authorities in connection with the audit or review of the tax
returns of Vista.
3.15 Books and Records.
-----------------
The general ledgers and books of account of Vista, all federal, state
and local income, franchise, property and other tax returns filed by Vista are
in all material respects complete and correct and have been maintained in
accordance with good business
-15-
<PAGE>
practice and in accordance with all applicable procedures required by laws and
regulations.
3.16 Contracts and Commitments.
-------------------------
(a) Schedule 3.16 attached hereto contains a true, complete
-------------
and correct list and description of the following contracts and agreements,
whether written or oral (collectively, the "Contracts"):
(i) all loan agreements, indentures, mortgages and
guaranties to which Vista is a party or by which Vista or any of its property is
bound;
(ii) all pledges, conditional sale or title retention
agreements, security agreements, equipment obligations, personal property leases
and lease purchase agreements to which Vista is a party or by which Vista or any
of its property is bound;
(iii) all contracts, agreements, commitments, purchase
orders or other understandings or arrangements to which Vista is a party or by
which Vista or any of its property is bound which (A) involve payments or
receipts by Vista of more than $500 in the case of any single contract,
agreement, commitment, understanding or arrangement under which full performance
(including, without limitation, payment) has not been rendered by all parties
thereto or (B) which may materially adversely affect the condition (financial or
otherwise) or the properties, assets, business or prospects of Vista;
(iv) all employment and consulting agreements, executive
compensation plans, bonus plans, deferred compensation agreements, pension
plans, retirement plans, employee stock option or stock purchase plans and group
life, health and accident insurance and other employee benefit plans,
agreements, arrangements or commitments to which Vista is a party or by which
Vista or any of its property is bound;
(v) all agency, distributor, sales representative,
franchise or similar agreements to which Vista is a party or by which Vista or
any of its property is bound;
(vi) all contracts, agreements or other understandings
or arrangements between Vista and any of the Stockholders or their affiliates;
(vii) all leases, whether operating, capital or
otherwise, under which Vista is lessor or lessee;
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<PAGE>
(viii) all contracts, agreements and other documents or
information relating to past disposal of waste (whether or not hazardous), and
sales of steel scrap, prototypes, tools and dies;
(ix) all contracts, agreements or other arrangements
imposing a non-competition or non-solicitation obligation on Vista; and
(x) any other material agreements or contracts entered
into by Vista.
(b) Except as set forth on Schedule 3.16:
-------------
(i) each Contract is a valid and binding agreement of
Vista, enforceable against Vista in accordance with its terms, and neither Vista
nor any Stockholder has any knowledge that any Contract is not a valid and
binding agreement of the other parties thereto;
(ii) Vista has fulfilled all material obligations
required pursuant to the Contracts to have been performed by Vista on its part
prior to the date hereof or prior to the Effective Date, as appropriate, and
Vista has no reason to believe that it will not be able to fulfill, when due,
all of its obligations under the Contracts which remain to be performed after
the date hereof;
(iii) Vista is not in breach of or default under any
Contract, and no event has occurred which with the passage of time or giving of
notice or both would constitute such a default, result in a loss of rights or
result in the creation of any lien, charge or encumbrance, thereunder or
pursuant thereto;
(iv) to the best knowledge of Vista or any of the
Stockholders, there is no existing breach or default by any other party to any
Contract, and no event has occurred which with the passage of time or giving of
notice or both would constitute a default by such other party, result in a loss
of rights or result in the creation of any lien, charge or encumbrance
thereunder or pursuant thereto;
(v) there are not and, since June 30, 1995, have not
been, any claims of a non-routine nature relating to Vista by customers of Vista
under any warranties, whether express or implied;
(vi) Vista is not restricted by any Contract from
carrying on its business anywhere in the world; and
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<PAGE>
(vii) Vista has no written or oral contracts to sell
products or perform services which are expected to be performed at, or to result
in, a loss.
(c) Vista has not been suspended or debarred from bidding on
contracts or subcontracts with any governmental entity; no such suspension or
debarment has been threatened or initiated; and the consummation of the
transactions contemplated by this Agreement and Plan of Merger will not result
in any such suspension or debarment of Vista or Peritus (assuming that no such
suspension or debarment will result solely from the identity of Peritus). Except
as described on Schedule 3.16, Vista has not been and is not now being audited
-------------
or investigated by the United States Government Accounting Office, the United
States Department of Defense or any of its agencies, the Defense Contract Audit
Agency, the contracting or auditing function of any other governmental entity
with which Vista is contracting, the United States Department of Justice, the
Inspector General of any United States governmental entity, or any prime
contractor with a governmental entity; nor, to the best knowledge of Vista or
any Stockholder, has any such audit or investigation been threatened. To the
best knowledge of Vista or any Stockholder, except as described on Schedule
--------
3.16, there is no valid basis for (i) the suspension or debarment of Vista from
- ----
bidding on contracts or subcontracts with any governmental entity or (ii) any
claim (including any claim for a return of funds to the government) pursuant to
an audit or investigation by any of the entities named in the foregoing
sentence. Vista has no agreements, contracts or commitments which require it to
obtain or maintain a security clearance with any governmental entity.
(d) To the best knowledge of Vista or any Stockholder no basis
exists for any of the following with respect to any of Vista's contracts or
subcontracts with any governmental entity: (i) a Termination for Default (as
provided in 48 C.F.R. Ch. 1 (S)(S)52.249-8, 52.249-9 or similar sections), (ii)
a Termination for Convenience (as provided in 48 C.F.R. Ch. 1 (S)(S)52.249-1,
52.249-2 or similar sections), or (iii) a Stop Work Order (as defined in 48
C.F.R. Ch. (S)52.212-13 or similar sections); and neither Vista nor any
Stockholder has any reason to believe that funding may not be provided under any
contract or subcontract of Vista with any governmental entity in the upcoming
federal fiscal year.
(e) True, correct and complete copies of all Contracts have
previously been delivered by Vista to Peritus.
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<PAGE>
3.17 Compliance with Agreements and Laws.
-----------------------------------
(a) Vista has all requisite licenses, permits and
certificates, including environmental, health and safety permits, from federal,
state and local authorities necessary to conduct its business and own and
operate its assets (collectively, the "Permits"). Schedule 3.17 attached hereto
-------------
sets forth a true, correct and complete list of all such Permits, copies of
which have previously been delivered by Vista to Peritus. Vista is not in
violation of any law, regulation or ordinance (including, without limitation,
laws, regulations or ordinances relating to building, zoning, environmental,
disposal of hazardous substances, land use or similar matters) relating to its
properties. Except as set forth on Schedule 3.17, the business of Vista as
-------------
conducted since December 31, 1992 has not violated, on the date hereof does not
violate, and on the Effective Date will not violate, in any material respect,
any federal, state, local or foreign laws, regulations or orders (including, but
not limited to, any of the foregoing relating to employment discrimination,
occupational safety, environmental protection, hazardous waste, conservation,
government contracting, export controls, or corrupt practices), the enforcement
of which would have a material adverse effect on the results of operations,
condition (financial or otherwise), assets, properties, business or prospects of
Vista. Except as set forth on Schedule 3.17, Vista has not received any notice
-------------
or communication from any federal, state or local governmental or regulatory
authority or otherwise, since December 31, 1992, of any such violation or
noncompliance.
(b) Vista is not in violation of any federal, state, county or
municipal authority law, ruling, order, decree, regulation, permit, or other
environmental or hazardous waste requirement applicable to Vista, any of its
properties or assets, or any part thereof, relating to health, safety,
pollution, hazardous waste, environmental or other similar matters, which has
not been entirely corrected and which has or will have a material adverse impact
on the transactions contemplated herein. Vista has not received any notice from
any federal, state, county or municipal authority alleging any such violation.
(c) For purposes of this Subsection 3.17, "hazardous waste"
means "hazardous waste" as defined in the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. (S)6921 et seq., and the regulations adopted pursuant
-- ---
thereto.
3.18 Employee Relations.
------------------
(a) Vista is in compliance with all federal, state and
municipal laws respecting employment and employment practices, terms and
conditions of employment, and wages and
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<PAGE>
hours, and is not engaged in any unfair labor practice, and there are no arrears
in the payment of wages or social security taxes.
(b) Except as set forth on Schedule 3.18 attached hereto:
-------------
(i) none of the employees of Vista is represented, or at
any time since the date of incorporation of Vista and while an employee of Vista
has been represented, by any labor union;
(ii) there is no unfair labor practice complaint against
Vista pending before the National Labor Relations Board or any state or local
agency;
(iii) there is no pending labor strike or other material
labor trouble affecting Vista (including, without limitation, any organizational
drive);
(iv) there is no material labor grievance pending against
Vista;
(v) there is no pending representation question
respecting the employees of Vista;
(vi) Vista is not, and since the date of its
incorporation has not been, a party to any collective bargaining agreement; and
(vii) Vista has no continuing obligation for health, life,
medical insurance or other similar fringe benefits to any former employee of
Vista.
(c) Schedule 3.18 sets forth a true, correct and complete list
-------------
of the current payroll of Vista, including the job descriptions and salary or
wage rates of its employees, showing separately for each such person who
received (or is entitled or expected to receive) an annual salary in excess of
$50,000 the maximum amounts paid or payable as salary and bonus payments for the
fiscal year ending December 31, 1995.
(d) For purposes of this Subsection 3.18, the term "employee"
shall be construed to include sales agents and other independent contractors who
spend a majority of their working time on the business of Vista.
3.19 Employee Benefit Plans.
----------------------
(a) Employee Plans. Schedule 3.19 attached hereto contains a
-------------- -------------
true, correct and complete list of all pension,
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<PAGE>
benefit, profit sharing, retirement, deferred compensation, welfare, insurance,
disability, bonus, vacation pay, severance pay and other similar plans, programs
and agreements, whether reduced to writing or not, relating to Vista's
employees, or maintained at any time since January 1, 1991 by Vista or by any
other member (hereinafter, "Affiliate") of any controlled group of corporations,
group of trades or businesses under common control, or affiliated service group
(as defined for purposes of Section 414(b), (c) and (m), respectively, of the
Code) (the "Employee Plans") and, except as set forth on Schedule 3.19 attached
-------------
hereto, Vista has no obligations, contingent or otherwise, past or present,
under applicable law or the terms of any Employee Plan.
(b) Absence of Certain Plans. Neither Vista nor any Affiliate
------------------------
has ever had an obligation to contribute to a multiemployer plan (as defined in
Section 400(a)(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")). Neither Vista nor any Affiliate has ever maintained an
employee benefit plan which is or was subject to any of Section 412 of the Code,
Part 3 of Subtitle B of Title I of ERISA or Title IV of ERISA.
(c) Prohibited Transactions. Neither Vista nor any of its
-----------------------
Affiliates, directors, officers, employees or agents, or any "party in interest"
or "disqualified person," as such terms are defined in Section 3 of ERISA and
Section 4975 of the Code, has, with respect to any Employee Plan, engaged in or
been a party to any nonexempt "prohibited transaction," as such term is defined
in Section 4975 of the Code or Section 406 of ERISA, in connection with which,
directly or indirectly, Peritus or any of its Affiliates, directors or employees
or any Employee Plan or any related funding medium could be subject to either a
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code.
(d) Compliance. With respect to all Employee Plans, Vista and
----------
its Affiliates are in compliance with the requirements prescribed by any and all
statutes, orders or governmental rules or regulations currently in effect,
including, but not limited to, ERISA, the Code and any such requirements
administered by the U.S. Department of Labor, applicable to such Employee Plans.
Vista and its Affiliates have in all respects performed all obligations required
to be performed by them under, and is not in violation in any respect of, and
there has been no default or violation by any other party with respect to, any
of the Employee Plans. Except as set forth on Schedule 3.19 attached hereto,
-------------
neither Vista nor any Affiliate has failed to pay any amounts due and owing as
required by the terms of any Employee Plan.
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<PAGE>
(e) Retiree Benefits. Except as set forth in Schedule 3.19, there
---------------- -------------
are no unfunded obligations under any Employee Plan providing benefits after
termination of employment to any employee or former employee of Vista (or to any
beneficiary of such employee or former employee), including but not limited to
health or life insurance benefits for retirees and deferred compensation. No
such plan contains any provisions, and no commitments or agreements exist, which
in any way would limit or prohibit Peritus from amending any such plan to reduce
or eliminate such retiree benefits.
(f) Copies of Employee Plans and Related Documents. Vista has
----------------------------------------------
previously delivered to Peritus true, correct and complete copies of all
Employee Plans which have been reduced to writing and written descriptions of
all Employee Plans which have not been reduced to writing, and all agreements,
including trust agreements and insurance contracts, related to such Employee
Plans, and the Summary Plan Description and all modifications thereto for each
Employee Plan communicated to employees.
(g) Qualifications. Each Employee Plan intended to qualify under
--------------
Section 401(a) of the Code has been determined by the Internal Revenue Service
to so qualify, and the trusts created thereunder have been determined to be
exempt from tax under the provisions of Section 501(a). Each Employee Plan
which is a funded welfare benefit plan intended to be exempt from tax under the
provisions of Section 501(c)(9) of the Code has been determined by the Internal
Revenue Service to be so exempt. Copies of all determination letters with
respect to each such Employee Plan have been previously delivered by Vista to
Peritus, and nothing has since occurred, or will occur prior to the Effective
Date, which might cause the loss of such qualification or exemption, no such
Employee Plan has been operated in a manner which would cause it to be
disqualified in operation, and all such Employee Plans have been administered in
compliance with and consistent with all applicable requirements of the Code and
ERISA, including, without limitation, all reporting, notice, and disclosure
requirements.
(h) Funding Status, Etc.
-------------------
(i) With respect to each Employee Plan which is a qualified
defined contribution pension, profit-sharing or stock bonus plan, as defined in
ERISA, all employer contributions accrued for plan years ending prior to the
Effective Date under the Plan terms and applicable law have been made by Vista.
(ii) All premiums or other payments required by the terms of
any group or individual insurance policies and
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<PAGE>
programs maintained by Vista and covering any present or former employees of
Vista with respect to all periods up to and including the Effective Date have
been fully paid for the length of the obligation. To the extent not heretofore
satisfied or accrued on the Current Balance Sheet, there are no welfare benefits
not fully covered by third-party insurance policies or programs relating to
claims incurred, or which may be incurred, by present or former employees of
Vista on or before the Effective Date.
(i) Claims and Litigation. Except as set forth on Schedule 3.19,
--------------------- --------------
there are no threatened or pending claims, suits or other proceedings by present
or former employees of Vista or its affiliates, plan participants, beneficiaries
or spouses of any of the above, the Internal Revenue Service, or any other
person or entity involving any Employee Plan, including, without limitation,
claims against the assets of any trust involving any Employee Plan, or any
rights or benefits thereunder, other than ordinary and usual claims for benefits
by participants or beneficiaries, including, without limitation, claims pursuant
to domestic relations orders.
(j) No Implied Rights. Nothing expressed or implied herein shall
-----------------
confer upon any past or present employee of Vista, his or her representatives,
beneficiaries, successors and assigns, nor upon any collective bargaining agent,
any rights or remedies of any nature, including, without limitation, any rights
to employment or continued employment with Vista, Peritus, or any successor or
affiliate.
(k) Liabilities. Except as heretofore accrued on the Current
-----------
Financial Statements or set forth on Schedule 3.19, there are no liabilities
-------------
with respect to any Employee Plan which liability relates to any period prior to
the Effective Date, including, without limitation, any taxes, accrued vacation
or sick pay (whether or not vested), accrued vacation, sick and personal leaves,
employee policies, or employee benefit claims. Without limitation of the
foregoing, Schedule 3.19 attached hereto sets forth all amounts of severance pay
-------------
(or the method of calculating such amounts based on the exact date of
effectiveness of the Merger) to which employees of Vista (i) will be entitled on
the Effective Date by reason of the consummation of the transactions
contemplated by this Agreement and Plan of Merger or (ii) will have accrued
prior to the Effective Date and which will be payable to them upon any
subsequent termination of their employment after the Effective Date.
(l) Schedule 3.19 discloses each: (i) agreement with any
-------------
director, executive officer or other key employee of Vista (A) the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction
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<PAGE>
involving Vista of the nature of any of the transactions contemplated by this
Agreement and Plan of Merger, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other benefits
after the termination of employment of such director, executive officer or key
employee; (ii) agreement, plan or arrangement under which any person may receive
payments from Vista or any Stockholder that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (iii) agreement or plan
binding Vista or any Stockholder, including, without limitation, any stock
option plan, stock appreciation rights plan, restricted stock plan, stock
purchase plan, severance benefit plan or employee benefit plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement and Plan of Merger or the value of any of the benefits of
which will be calculated on the basis of any of the transactions contemplated by
this Agreement and Plan of Merger.
3.20 Absence of Certain Changes or Events.
------------------------------------
(a) Except as set forth on Schedule 3.20 attached hereto,
-------------
since the Balance Sheet Date, Vista has not entered into any transaction which
is not in the usual and ordinary course of business, and, without limiting the
generality of the foregoing, Vista has not:
(i) incurred any material obligation or liability for
borrowed money;
(ii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability other than current liabilities reflected in the
Current Balance Sheet;
(iii) mortgaged, pledged or subjected to lien, charge or other
encumbrance any of their respective properties or assets;
(iv) sold or purchased, assigned or transferred any of its
tangible assets or cancelled any debts or claims, except for inventory sold and
materials and supplies purchased in the ordinary course of business;
(v) made any material amendment to or termination of any
Contract or done any act or omitted to do any act which would cause the breach
of any Contract;
(vi) suffered any losses of personal or real property,
whether insured or uninsured, and whether or not in the
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<PAGE>
control of Vista, in excess of $1,000 in the aggregate, or waived any rights of
any value;
(vii) authorized any declaration or payment of dividends by
Vista, or paid any such dividends, or authorized any transfer of assets of any
kind whatsoever by Vista to any of the Stockholders with respect to any shares
of Vista's capital stock;
(viii) authorized or issued recall notices for any of its
products or initiated any safety investigations;
(ix) received notice of any litigation, warranty claim or
products liability claims;
(x) made any material change in the terms, status or
funding condition of any Employee Plan, as defined in Subsection 3.19 hereof;
(xi) engaged any new employee for a salary in excess of
$50,000 per annum;
(xii) made, or committed to make, any changes in the
compensation payable to any officer, director, employee or agent of Vista, or
any bonus payment or similar arrangements made to or with any of such officers,
directors, employees or agents;
(xiii) incurred any capital expenditure in excess of $2,000
in any instance or $5,000 in the aggregate;
(xiv) made any material alteration in the manner of keeping
the books, accounts or records of Vista or in the accounting practices therein
reflected; or
(xv) suffered any material adverse change in the
consolidated results of operations, condition (financial or otherwise), assets,
liabilities (whether absolute, accrued, contingent or otherwise), business or
prospects of Vista.
(b) Neither Vista nor any of the Stockholders has knowledge of
any existing or threatened occurrence, event or development which, as far as can
be reasonably foreseen, could have a material adverse effect on the business,
properties, assets, condition (financial or otherwise) or prospects of Vista.
3.21 Customers.
---------
Schedule 3.21 attached hereto sets forth a true, correct and complete
-------------
list of (a) the names and addresses of each customer of Vista which accounted
(or is expected to account) for more than
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<PAGE>
20% of the revenues of Vista in the fiscal year ending December 31, 1995. Except
as set forth on Schedule 3.21, Vista has good customer relations and none of the
-------------
customers of Vista has notified Vista or any Stockholder that it intends to
discontinue its relationship with Vista.
3.22 Suppliers.
---------
Schedule 3.22 attached hereto sets forth a true, correct and complete
-------------
list of (i) the names and addresses of each of the suppliers of Vista which
accounted (or is expected to account) for a dollar volume of purchases by Vista
in excess of $3,000 for the fiscal year ending December 31, 1995, and (ii) the
present sole source suppliers of significant goods or services, other than
utilities, for any product with respect to which practical alternative sources
of supply are not available on comparable terms and conditions, indicating the
contractual arrangements for continued supply from each such supplier. Except
as set forth on Schedule 3.22, Vista (a) has good relations with all of its
-------------
suppliers, and (b) is not more than 30 days in arrears in any trade accounts
payable or other payments owing to any supplier.
3.23 Warranty and Product Liability Claims.
-------------------------------------
Schedule 3.23 attached hereto contains a true, correct and complete
-------------
list of all warranty, product liability and maintenance claims made against
Vista from December 31, 1994 through the date hereof, the current status of all
such claims and the costs of all actions taken in satisfaction of such claims.
All information relative to such claims and those arising thereafter shall be
available to Peritus from and after the date hereof.
3.24 Prepayments and Deposits.
------------------------
Schedule 3.24 attached hereto sets forth all prepayments and deposits,
-------------
which have been received by Vista as of the date hereof, from customers for
products to be shipped, or services to be performed, after the Effective Date.
3.25 Indebtedness to and from Officers, Directors and Stockholders.
-------------------------------------------------------------
Except as set forth on Schedule 3.25 attached hereto, Vista is not
-------------
indebted, directly or indirectly, to any person who is an officer or director of
Vista, or a Stockholder, or any affiliate of any such person, in any amount
whatsoever, other than for salaries for services rendered or reimbursable
business expenses, all of which have been reflected on the Current Financial
Statements, and no such officer, director, Stockholder
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<PAGE>
or affiliate is indebted to Vista except for advances made to employees of Vista
in the ordinary course of business to meet reimbursable business expenses
anticipated to be incurred by such obligor.
3.26 Banking Facilities.
------------------
Schedule 3.26 attached hereto sets forth a true, correct and complete
-------------
list of:
(a) each bank, thrift institution or other financial institution
in which Vista has an account or safety deposit box and the numbers of the
accounts or safety deposit boxes maintained by Vista thereat; and
(b) the names of all persons authorized to draw on each such
account or to have access to any such safety deposit box facility, together with
a description of the authority (and conditions thereof, if any) of each such
person with respect thereto.
3.27 Powers of Attorney and Suretyships.
----------------------------------
Except as set forth on Schedule 3.27 attached hereto, Vista has no
-------------
general or special powers of attorney outstanding (whether as grantor or grantee
thereof) or has any obligation or liability (whether actual, accrued, accruing,
continent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person, corporation,
partnership, joint venture, association, organization or other entity, except as
endorser or maker of checks or letters of credit, respectively, endorsed or made
in the ordinary course of business.
3.28 Conflicts of Interest.
---------------------
Except as set forth on Schedule 3.28 attached hereto, no officer,
-------------
director or Stockholder of Vista nor, to the best knowledge of Vista or any of
the Stockholders, any affiliate of any such person, now has or within the last
three (3) years had, either directly or indirectly:
(a) an equity or debt interest with a fair market value in excess
of $100,000 in any corporation, partnership, joint venture, association,
organization or other person or entity (other than Peritus) which furnishes or
sells or during such period furnished or sold services or products to Vista, or
purchases or during such period purchased from Vista any goods or services, or
otherwise does or during such period did business with Vista; or
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<PAGE>
(b) a beneficial interest (other than through Peritus) in any
contract, commitment or agreement to which Vista is or was a party or under
which any of them is or was obligated or bound or to which any of their
respective properties may be or may have been subject, other than stock options
and other contracts, commitments or agreements between Vista and such persons in
their capacities as employees, officers or directors of Vista.
3.29 Regulatory Approvals.
--------------------
Except for the filing of the articles of merger and any other Merger
Documents pursuant to the Illinois Business Corporation Law and the
Massachusetts Business Corporation Law, all consents, approvals, authorizations,
filings or other requirements prescribed by any law, rule or regulation which
must be obtained or satisfied by Vista and which are necessary for the execution
and delivery by Vista of this Agreement and Plan of Merger or any documents to
be executed and delivered by the Stockholders or Vista in connection herewith
are set forth on Schedule 3.29 attached hereto and have been, or prior to the
-------------
Effective Date will be, obtained, made and satisfied.
3.30 Disclosure.
----------
The information concerning Vista set forth in this Agreement and Plan
of Merger, the Exhibits and Schedules attached hereto and any document,
statement or certificate furnished or to be furnished to Peritus pursuant
hereto, does not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein, in light
of the circumstances in which they are made, not false and misleading. Vista
has disclosed to Peritus all material facts pertaining to the Merger and the
other transactions contemplated by this Agreement and Plan of Merger and the
Exhibits and Schedules hereto. Copies of all documents heretofore or hereafter
delivered or made available to Peritus pursuant to this Agreement and Plan of
Merger were or will be complete and accurate copies of such documents.
4. Representations and Warranties of Peritus
-----------------------------------------
Peritus represents and warrants to Vista as follows:
4.01 Organization and Authority.
--------------------------
Peritus is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts, and has all
requisite power and authority to own
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<PAGE>
its properties and to carry on its business as now being conducted. Peritus has
full power to execute and deliver this Agreement and Plan of Merger and the
agreements contemplated herein, and to consummate the transactions contemplated
hereby and thereby. Copies of the Articles of Incorporation and the By-laws of
Peritus, as amended to date, have been previously delivered to Vista, are
complete and correct, and no amendments have been made thereto or have been
authorized since the date thereof.
4.02 Capitalization of Peritus.
-------------------------
On the date hereof, Peritus's authorized capital stock consists of
3,760,000 shares of Peritus Class A Common Stock, of which 2,225,815 shares are
issued and outstanding, and 40,000 shares of Peritus Class B Common Stock, of
which 39,715 shares are issued and outstanding. All of the outstanding shares
of capital stock of Peritus have been, and on the Effective Date will be, duly
and validly issued and are, or will be, fully paid and non-assessable. Upon
issuance thereof to the Stockholders in connection with the Merger, all shares
of Peritus Class A Common Stock so issued will be validly issued, fully paid and
non-assessable.
4.03 Authorization.
-------------
Except for any approval by the stockholders of Peritus required by the
Massachusetts Business Corporation Law, which approval shall, if so required, be
obtained prior to the Effective Date, the execution and delivery by Peritus of
this Agreement and Plan of Merger, and the consummation by Peritus of the Merger
and the other transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and Plan of Merger and all other
agreements and written obligations entered into and undertaken in connection
with the Merger and the other transactions contemplated hereby constitute the
valid and legally binding obligations of Peritus, enforceable against Peritus in
accordance with their respective terms. The execution, delivery and performance
of this Agreement and Plan of Merger and the agreements provided for herein, and
the consummation by Peritus of the Merger and the other transactions
contemplated hereby and thereby, will not, with or without the giving of notice
or the passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to Peritus; (b) violate the provisions of Peritus's
Articles of Incorporation or By-laws; (c) violate any judgment, decree, order or
award of any court, governmental body or arbitrator; or (d) conflict with or
result in the breach or termination of any term or provision of, or constitute a
default under, or cause any acceleration under, or cause the creation of any
lien, charge or encumbrance upon the properties or assets of Peritus pursuant
to, any indenture,
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<PAGE>
mortgage, deed of trust or other agreement or instrument to which Peritus is a
party or by which Peritus is or may be bound. No consent or approval of any
third party is required in connection with the consummation by Peritus of the
Merger and the other transactions contemplated by this Agreement and Plan of
Merger.
4.04 Regulatory Approvals.
--------------------
Except for the filing of the articles of merger and any other Merger
Documents pursuant to the Massachusetts Business Corporation Law and the
Illinois Business Corporation Law, all consents, approvals, authorizations,
filings and other requirements prescribed by any law, rule or regulation which
must be obtained or satisfied by Peritus and which are necessary for the
consummation of the Merger and the other transactions contemplated by this
Agreement and Plan of Merger have been, or prior to the Effective Date will be,
obtained, made and satisfied.
4.05 Disclosure.
----------
No representation or warranty by Peritus in this Agreement and Plan of
Merger or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to make
the statements contained therein not misleading.
5. Access to Information; Public Announcements
-------------------------------------------
5.01 Access to Management, Properties and Records.
--------------------------------------------
(a) From the date hereof until the Effective Date, Vista shall
afford the officers, attorneys, accountants and other authorized representatives
of Peritus free and full access upon reasonable notice and during normal
business hours to all management personnel, offices, properties, books and
records of Vista, so that Peritus may have full opportunity to make such
investigation as it shall desire to make of the management, business, properties
and affairs of Vista, and Peritus shall be permitted to make abstracts from, or
copies of, all such books and records. Vista and the Stockholders shall furnish
to Peritus such financial and operating data and other information as to the
business of Vista as Peritus shall reasonably request.
(b) Each of Vista and the Stockholders shall authorize the
release to Peritus of all files pertaining to the business or operations of
Vista held by any federal, state, county or local authorities, agencies or
instrumentalities. Vista's and the Stockholders' authorization shall
specifically waive all
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<PAGE>
previous claims of privilege or other restrictions, and in any case where a
release by a present or former employee of Vista is necessary, Vista and the
Stockholders shall exercise their respective best efforts to obtain such a
release.
5.02 Confidentiality.
---------------
(a) Vista and the Stockholders have furnished and will continue
to furnish Peritus, in connection with the Merger and the other transactions
contemplated hereby, with certain information which is either non-public,
confidential or proprietary in nature and which (i) is identified in writing as
being proprietary and confidential, (ii) is not already known to persons other
than Vista, the Stockholders, their representatives and third parties which have
entered into written non-disclosure agreements with Vista and (iii) has not been
independently developed by Peritus. All such information furnished to Peritus,
its directors, officers, employees, agents or representatives, including,
without limitation, attorneys, accountants, consultants, potential lenders,
investors and financial advisors (collectively, "representatives"), by Vista,
the Stockholders, or any of their respective representatives, and all analyses,
compilations, data, studies or other documents prepared by Peritus or its
representatives containing or based in whole or in part on any such furnished
information or reflecting Peritus's review of, or interest in, Vista is
hereinafter referred to as the "Information."
(b) Subject to the requirements of applicable law, Peritus hereby
agrees to use the Information solely in connection with the consummation of the
transactions contemplated by this Agreement and Plan of Merger and to transmit
the Information only to those representatives of Peritus who need to know the
Information.
5.03 Public Announcements.
--------------------
The parties agree that prior to the Effective Date any and all general
public pronouncements or other general public communications concerning this
Agreement and Plan of Merger and the transactions contemplated hereby, and the
timing, manner and content of such disclosures, shall be subject to the mutual
agreement of Vista and Peritus.
6. Pre-Effective Covenants of Vista
--------------------------------
From and after the date hereof and until the Effective Date:
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<PAGE>
6.01 Conduct of Business.
-------------------
Vista shall carry on its business diligently and substantially in the
same manner as heretofore and shall not make or institute any unusual or new
methods of manufacture, purchase, sale, shipment or delivery, provision of
services, lease, management, accounting or operation, and shall not ship or
deliver any quantity of products or provide any services in excess of normal
shipment, delivery or service provision levels, except as agreed to in writing
by Peritus. All of the property of Vista shall be used, operated, repaired and
maintained in a normal business manner consistent with past practice.
6.02 Absence of Material Changes.
---------------------------
Without the prior written consent of Peritus, Vista shall not:
(a) take any action to amend its charter documents or bylaws;
(b) issue any stock, bonds or other corporate securities or grant
any option or issue any warrant to purchase or subscribe for any of such
securities or issue any securities convertible into such securities;
(c) incur any obligation or liability (absolute or contingent),
except current liabilities incurred and obligations under contracts entered into
in the ordinary course of business;
(d) declare or make any payment or distribution to its
stockholders with respect to its stock or purchase or redeem any shares of its
capital stock;
(e) mortgage, pledge, or subject to any lien, charge or any other
encumbrance any of their respective assets or properties;
(f) sell, assign, or transfer any of its assets, except for
existing products and services sold in the ordinary course of business;
(g) cancel any debts or claims, except in the ordinary course of
business;
(h) merge or consolidate with or into any corporation or other
entity;
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(i) make, accrue or become liable for any bonus, profit sharing
or incentive payment, except for accruals under existing plans, if any, or
increase the rate of compensation payable or to become payable by it to any of
its officers, directors or employees, other than increases in the ordinary
course of business consistent with past practice;
(j) make any election or give any consent under the Code or the
tax statutes of any state or other jurisdiction or make any termination,
revocation or cancellation of any such election or any consent or compromise or
settle any claim for past or present tax due;
(k) waive any rights of material value;
(l) modify, amend, alter or terminate any of its executory
contracts of a material value or which are material in amount;
(m) take or permit any act or omission constituting a breach or
default under any contract, indenture or agreement by which it or its properties
are bound;
(n) fail to (i) preserve the possession and control of its assets
and business, (ii) keep in faithful service its present officers and key
employees, (iii) preserve the goodwill of its consumers, suppliers, agents,
brokers and others having business relations with it, and (iv) keep and preserve
its business existing on the date hereof until the Effective Date;
(o) fail to operate its business and maintain its books, accounts
and records in the customary manner and in the ordinary and regular course of
business and maintain in good repair its business premises, fixtures, machinery,
furniture and equipment;
(p) enter into any lease, contract, agreement or understanding,
other than those entered into in the ordinary course of business calling for
payments which in the aggregate do not exceed $1,000 for each such lease,
contract, agreement or understanding;
(q) incur any capital expenditure in excess of $2,000 in an
instance or $5,000 in the aggregate;
(r) engage any new employee for a salary in excess of $50,000 per
annum;
(s) materially alter the terms, status or funding condition of
any Employee Plan; or
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(t) commit or agree to do any of the foregoing in the future.
6.03 Delivery of Interim Financial Statements.
----------------------------------------
As promptly as possible following the last day of each month after the
date hereof until the Effective Date, and in any event within 20 days after the
end of each such month, Vista shall deliver to Peritus the balance sheet of
Vista and the related profit and loss statement of Vista for the one-month
period then ended, all certified by the chief financial officer of Vista to the
effect that such interim financial statements are prepared in accordance with
generally accepted accounting principles and fairly present the financial
condition of Vista as of the date thereof and for the period covered thereby
(collectively, the "Interim Financial Statements").
6.04 Communications with Customers and Suppliers.
-------------------------------------------
(a) Unless instructed otherwise by Peritus in writing, Vista will
continue to accept customer orders in the ordinary course of business and
consistent with past practice for all products and services offered by Vista but
expected to be shipped or performed after the Effective Date.
(b) Vista and Peritus will cooperate in communications with
suppliers and customers to accomplish the Merger on the Effective Date.
6.05 Compliance with Laws.
--------------------
Vista will comply with all laws and regulations which are applicable
to it or to the conduct of its business and will perform and comply with all
contracts, commitments and obligations by which it is bound.
6.06 Continued Truth of Representations and Warranties.
-------------------------------------------------
Neither Vista nor any Stockholder will take any actions which would
result in any of the representations or warranties of Vista or the Stockholders
set forth in this Agreement and Plan of Merger being untrue.
6.07 Continuing Obligation to Inform.
-------------------------------
From time to time prior to the Effective Date, Vista and the
Stockholders will deliver or cause to be delivered to Peritus supplemental
information concerning events subsequent to the date hereof which would render
any statement, representation or
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warranty in this Agreement and Plan of Merger or any information contained in
any Schedule attached hereto inaccurate or incomplete in any material respect at
any time after the date hereof until the Effective Date; provided that except as
--------
specified in Subsection 8.08 hereof, none of such supplemental information shall
constitute an amendment of any statement, representation or warranty in this
Agreement and Plan of Merger or any Schedule, Exhibit or document furnished
pursuant hereto.
6.08 Exclusive Dealing.
-----------------
Neither Vista nor any Stockholder will, directly or indirectly,
through any officer, director, agent or otherwise, (a) solicit, initiate or
encourage submission of proposals or offers from any person relating to an
acquisition or purchase of all or a material portion of the assets of or an
equity interest in Vista or any merger, consolidation or business combination
with Vista, or (b) participate in any discussions or negotiations regarding, or
furnish to any other person, any non-public information with respect to or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. Vista and each Stockholder agree to promptly notify Peritus of any
such proposal or offer, or any inquiry or contact with respect thereto received
by Vista or any of the Stockholders.
6.09 Reports, Taxes.
--------------
Vista will duly and timely file all reports or returns required to be
filed with federal, state, local and foreign authorities and will promptly pay
all federal, state, local and foreign taxes, assessments and governmental
charges levied or as sessed upon them or any of their properties (unless
contesting such in good faith and adequate provision has been made therefor).
6.10 Termination of Option Plans. Prior to the Effective Date, Vista
---------------------------
will (i) terminate any and all stock option, stock purchase or other plans or
arrangements providing for the grant to any person or entity of any option or
other right to purchase or otherwise acquire any securities of Vista, and (ii)
provide to Peritus evidence reasonably satisfactory to Peritus of such
termination.
7. Best Efforts to Obtain Satisfaction of Conditions
-------------------------------------------------
Vista, each of the Stockholders and Peritus covenant and agree to use
their respective best efforts to obtain the satisfaction of the conditions to
their respective obligations specified in this Agreement and Plan of Merger.
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8. Conditions to Obligations of Peritus
------------------------------------
The obligations of Peritus under this Agreement and Plan of Merger are
subject to the fulfillment, as of the Effective Date, of the following
conditions precedent, each of which may be waived in writing in the sole
discretion of Peritus:
8.01 Continued Truth of Representations and Warranties of Vista and
--------------------------------------------------------------
the Stockholders; Compliance with Covenants and Obligations.
-----------------------------------------------------------
The representations and warranties of Vista and the Stockholders set
forth herein shall be true on and as of the Effective Date as though such
representations and warranties were made on and as of such date (even though
they may purport to have been given on a date prior to the Effective Date),
except for any changes permitted by the terms hereof or consented to in writing
by Peritus. Vista and the Stockholders shall have performed and complied with
all terms, conditions, covenants, obligations, agreements and restrictions
required by this Agreement and Plan of Merger to be performed or complied with
by them prior to or at the Effective Date.
8.02 Performance by Vista.
--------------------
Vista and the Stockholders' Representative shall have delivered to
Peritus a certificate, signed by the President and Chief Financial Officer of
Vista and (with respect to the Stockholders) the Stockholders' Representative
and dated the Effective Date, as to Vista's and the Stockholders' compliance
with Subsection 8.01 hereof.
8.03 Governmental Approvals.
----------------------
All governmental agencies, departments, bureaux, commissions and
similar bodies, the consent, authorization or approval of which is necessary
under any applicable law, rule, order or regulation for the consummation by
Vista and the Stockholders of the Merger or the other transactions contemplated
by this Agreement and Plan of Merger and the operation of the business of Vista
by Peritus shall have consented to, authorized, permitted or approved the Merger
and such transactions.
8.04 Stockholder Approval.
--------------------
The Merger shall have been duly approved by the unanimous vote of the
stockholders of Vista at a properly convened meeting thereof and in compliance
with all applicable requirements of the Illinois Business Corporation Law.
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<PAGE>
8.05 Consent of Lenders, Lessors and Other Third Parties.
---------------------------------------------------
Vista and the Stockholders shall have received all requisite consents
and approvals of all lenders, lessors and other third parties whose consent or
approval is required in order for Vista and the Stockholders to consummate the
Merger and the other transactions contemplated by this Agreement and Plan of
Merger, including, without limitation, those set forth on Schedule 3.04 attached
-------------
hereto.
8.06 Adverse Proceedings.
-------------------
No action or proceeding by or before any court or other governmental
body shall have been instituted or threatened by any governmental body or person
whatsoever which shall seek to restrain, prohibit or invalidate the Merger or
the other transactions contemplated by this Agreement and Plan of Merger or
which might affect the right of Peritus to own or operate the business of Vista
after the Effective Date.
8.07 Opinion of Counsel.
------------------
Peritus shall have received an opinion of McBride, Baker & Coles,
counsel to Vista, dated as of the Effective Date, with respect to matters
specified on Schedule 8.07 hereto and such other matters as may be reasonably
-------------
requested by Peritus or its counsel, with only such exceptions and
qualifications, and otherwise in such form, as are customary for transactions of
this nature.
8.08 Update.
------
Vista and the Stockholders shall have provided Peritus with a true,
correct and complete list and amount, as of the last business day immediately
preceding the Effective Date, of:
(a) the Personal Property;
(b) the Leases;
(c) the Accounts Receivable, including an aging thereof;
(d) the Contracts;
(e) trade accounts payable and accrued liabilities;
(f) unfilled customer orders;
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<PAGE>
(g) all shipments of products made and services provided during
the period from the date of this Agreement and Plan of Merger to the Effective
Date; and
(h) long-term and short-term debt.
None of the information with respect to the items referred to in clauses (a)
through (h) above shall be materially adverse from the information supplied by
Vista as of the date hereof on Schedules 3.09, 3.11, 3.13, 3.16, 3.21 and 3.22
-------------- ---- ---- ---- ---- ----
attached hereto, and, with respect to clause (h) above, none of which
information shall be materially adverse from the information set forth in the
Current Balance Sheet. For purposes of this Subsection 8.08, the term
"materially adverse" shall mean any change, other than those specifically
contemplated by or permitted pursuant to the terms of this Agreement and Plan of
Merger, having an economic value in excess of $2,000.
8.09 Employment Contracts.
--------------------
On or prior to the Effective Date, Peritus shall have executed
employment contracts and other arrangements with the individuals listed on
Schedule 8.09 attached hereto, upon substantially the terms set forth in
- -------------
Schedule 8.09 and otherwise upon such terms and conditions as Peritus and each
- -------------
such individual may agree.
8.10 Cash Available for Working Capital Purposes.
-------------------------------------------
On the Effective Date, Vista will have in the aggregate available cash
for working capital purposes of not less than $200,000.
8.11 Repayment of Indebtedness.
-------------------------
On the Effective Date, Vista shall have no long-term or short-term
indebtedness.
8.12 Trade Payables.
--------------
On the Effective Date, Vista will not have obligations, in excess of
$35,000 in the aggregate, to unrelated, third party suppliers and vendors of
goods and services and other unrelated, third party trade creditors which have
been outstanding for more than 30 days.
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<PAGE>
8.13 Deliveries.
----------
Peritus shall have received on or prior to the Effective Date such
documents, instruments or certificates as Peritus may reasonably request
including, without limitation:
(a) a copy, certified by the Secretary of Vista, of the
resolutions of the Board of Directors of Vista approving and adopting this
Agreement and Plan of Merger;
(b) a copy, certified by the Secretary of Vista, of the
resolutions of the stockholders of Vista unanimously approving the Merger;
(c) such certificates of Vista's officers and of the
Stockholders' Representative and such other documents evidencing satisfaction of
the conditions specified in this Section 8 as Peritus shall reasonably request;
(d) a certificate of the Secretary of State of the State of
Illinois as to the legal existence and good standing (including tax) of Vista in
the State of Illinois;
(e) certificates of the Secretary of Vista attesting to the
incumbency of Vista's officers, the authenticity of the resolutions authorizing
the transactions contemplated by this Agreement and Plan of Merger, and the
authenticity and continuing validity of the charter documents and bylaws
delivered pursuant to Subsection 3.01;
(f) where required by the applicable Lease, estoppel certificates
or similar documentation reasonably satisfactory to Peritus from each lessor
from whom Vista leases real or personal property consenting to the Merger and
the other transactions contemplated hereby, and representing that there are no
outstanding claims against Vista under such Lease;
(g) certificates of appropriate governmental officials in each
state in which Vista is required to qualify to do business as a foreign
corporation as to the due qualification and good standing (including tax) of
Vista in each such jurisdiction;
(h) the original corporate minute books of Vista and all
corporate seals; and
(i) the Escrow Agreement, fully executed by each Stockholder.
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<PAGE>
8.14 Approval of Merger Documents. Peritus and its counsel shall have
----------------------------
been provided the opportunity to review and comment on drafts of any and all
Merger Documents filed or recorded (or to be filed or recorded) by Vista with
the Secretary of State of the State of Illinois, and shall have approved the
final version of each such Merger Document prior to such filing or recordation
(which approval shall not be unreasonably withheld).
9. Conditions to Obligations of Vista
----------------------------------
The obligations of Vista under this Agreement and Plan of Merger are
subject to the fulfillment, as of the Effective Date, of the following
conditions precedent, each of which may be waived in writing in the sole
discretion of Vista:
9.01 Continued Truth of Representations and Warranties of Peritus;
-------------------------------------------------------------
Compliance with Covenants and Obligations.
-----------------------------------------
The representations and warranties of Peritus in this Agreement and
Plan of Merger shall be true on and as of the Effective Date as though such
representations and warranties were made on and as of such date, except for any
changes consented to in writing by Vista. Peritus shall have performed and
complied with all terms, conditions, covenants, obligations, agreements and
restrictions required by this Agreement and Plan of Merger to be performed or
complied with by it prior to or as of the Effective Date.
9.02 Corporate Proceedings.
---------------------
All corporate and other proceedings required to be taken on the part
of Peritus to consummate the Merger shall have been taken.
9.03 Governmental Approvals.
----------------------
All governmental agencies, departments, bureaux, commissions and
similar bodies, the consent, authorization or approval of which is necessary
under any applicable law, rule, order or regulation for the consummation by
Peritus of the Merger and the other transactions contemplated by this Agreement
and Plan of Merger shall have consented to, authorized, permitted or approved
such transactions.
9.04 Consents of Lenders, Lessors and Other Third Parties.
----------------------------------------------------
Peritus shall have received all requisite consents and approvals of
all lenders, lessors and other third parties whose
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consent or approval is required in order for Peritus to consummate the Merger
and the other transactions contemplated by this Agreement and Plan of Merger.
9.05 Adverse Proceedings.
-------------------
No action or proceeding by or before any court or other governmental
body shall have been instituted or threatened by any governmental body or person
whatsoever which shall seek to restrain, prohibit or invalidate the Merger or
the other transactions contemplated by this Agreement and Plan of Merger.
9.06 Opinion of Counsel.
------------------
Vista shall have received an opinion of Hale and Dorr, counsel to
Peritus, dated as of the Effective Date, with respect to matters specified on
Schedule 9.06 hereto and such other matters as may be reasonably requested by
- -------------
Vista or its counsel, with only such exceptions and qualifications, and
otherwise in such form, as are customary for transactions of this size and
nature.
9.07 Deliveries.
----------
Vista shall have received on or prior to the Effective Date such
documents, instruments or certificates as Vista may reasonably request
including, without limitation:
(a) such certificates of Peritus' officers and such other
documents evidencing satisfaction of the conditions specified in this Section 9
as Vista shall reasonably request;
(b) a certificate of the Secretary of the Commonwealth of the
Commonwealth of Massachusetts as to the legal existence and good standing
(including tax) of Peritus in the Commonwealth of Massachusetts;
(c) a certificate of the Secretary of Peritus attesting to the
incumbency of Peritus's officers and the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement and Plan of Merger;
and
(d) the Escrow Agreement fully executed by Peritus.
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<PAGE>
10. Survival of Representations and Warranties
------------------------------------------
10.01 Survival of Representations and Warranties of Vista.
---------------------------------------------------
All representations and warranties made by Vista or any Stockholder in
this Agreement and Plan of Merger, or in any instrument or document executed and
delivered, or otherwise furnished, in connection with this Agreement and Plan of
Merger or the transactions contemplated hereby, shall survive the Merger and any
investigation made by or on behalf of any party until the termination of the
Escrow Agreement; provided, however, that, notwithstanding the foregoing, the
representations and warranties of the Stockholders set forth in Section 2 hereof
and the representations and warranties of Vista set forth in Subsections 3.12,
3.14, 3.17 (with respect to environmental matters), 3.19 and 13.01 shall survive
until the expiration of the applicable period of limitations or any extension
hereof.
10.02 Survival of Representations and Warranties of Peritus.
-----------------------------------------------------
No representation or warranty made by Peritus in this Agreement and
Plan of Merger, or in any instrument or document furnished in connection with
this Agreement and Plan of Merger or the transactions contemplated hereby, shall
survive consummation of the Merger, and all such representations and warranties
shall expire upon such consummation.
11. Termination of Agreement; Option to Proceed; Damages
----------------------------------------------------
11.01 Termination by Lapse of Time.
----------------------------
Subject to Subsection 11.04 hereof, this Agreement and Plan of Merger
shall terminate at 5:00 p.m., Boston Time, on February 29, 1996 (the "Expiration
Date"), if the transactions contemplated hereby (other than any transactions
expressly intended hereby or by the Escrow Agreement to occur after the
Effective Date) have not been consummated, unless such date is extended by the
written consent of Vista and Peritus.
11.02 Termination by Agreement of the Parties.
---------------------------------------
This Agreement and Plan of Merger may be terminated and the Merger may
be abandoned at any time prior to the Effective Date by the mutual written
agreement of the Boards of Directors of Peritus and Vista notwithstanding
approval of this Agreement by the stockholders of Peritus or Vista. In the
event of such termination and abandonment by agreement, Peritus shall have no
further obligation or liability to Vista or any Stockholder under
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this Agreement and Plan of Merger, and neither Vista nor any Stockholder shall
have any further obligation or liability to Peritus under this Agreement and
Plan of Merger.
11.03 Termination by Reason of Breach.
-------------------------------
This Agreement and Plan of Merger may be terminated by Vista, if at
any time prior to the Effective Date there shall occur a breach of any of the
representations, warranties or covenants of Peritus or the failure by Peritus to
perform any condition or obligation hereunder, and may be terminated by Peritus,
if at any time prior to the Effective Date there shall occur a breach of any of
the representations, warranties or covenants of Vista or any Stockholder or the
failure by Vista or any Stockholder to perform any condition or obligation
hereunder (such a breach by Vista shall be referred to herein as a "Pre-
Effective Breach").
11.04 Option to Proceed.
-----------------
(a) Notwithstanding a Pre-Effective Breach by Vista or any
Stockholder, or the inability of Vista or any Stockholder to satisfy all of the
terms and conditions precedent to the Merger as set forth in this Agreement and
Plan of Merger, all as herein stipulated, Peritus may elect by written notice
given to Vista on or prior to the Expiration Date either to (i) terminate this
Agreement and Plan of Merger, or (ii) postpone the Expiration Date by 30 days,
during which period Vista and each Stockholder shall use its respective best
efforts to satisfy all such conditions to the Merger as provided herein. If
Vista and the Stockholders are unable, upon expiration of such 30-day period, to
satisfy all such conditions to the Merger, Peritus may elect, by written notice
given to Vista to (x) terminate this Agreement and Plan of Merger, (y) proceed
to consummate the Merger, or (z) postpone the Expiration Date for an additional
30 days.
(b) If Peritus elects to postpone the Expiration Date for an
additional 30 days pursuant to clause (z) of paragraph (a) above, then (i)
Peritus and Vista shall, within the 30-day period specified in clause (z) of
paragraph (a) above, agree upon the amount of the diminution in the value of
Vista as a result of the Pre-Effective Breach or the cost to Peritus of curing
such defect (the "Pre-Effective Adjustment Amount"), and (ii) the Conversion
Ratio shall be adjusted so as to reduce the number of shares of Peritus Class A
Common Stock to be issued to the Stockholders in connection with the Merger by
the number of such shares calculated by dividing (A) the Pre-Effective
Adjustment Amount by (B) the Fair Market Value of such shares. Peritus and Vista
shall use their respective best efforts to agree
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upon the Pre-Effective Adjustment Amount and the related adjustment of the
Conversion Ratio within such 30-day period; provided, however, that if Peritus
and Vista cannot agree upon the Pre-Effective Adjustment Amount and the related
adjustment of the Conversion Ratio within such 30-day period, Peritus may
terminate this Agreement and Plan of Merger in accordance with clause (i) of
paragraph (a) above. For the purposes of this Agreement and Plan of Merger, the
"Fair Market Value" of shares of Peritus Class A Common Stock shall be deemed
equal to $6.50 per share.
11.05 Availability of Remedies at Law.
-------------------------------
In the event this Agreement and Plan of Merger is terminated by
Peritus or Vista pursuant to the provisions of this Section 11, the parties
hereto shall have available to them all remedies afforded to them by applicable
law.
12. Dispute Resolution
------------------
12.01 General.
-------
In the event that any dispute should arise between the parties hereto
with respect to any matter covered by this Agreement and Plan of Merger,
including, without limitation, the occurrence of a Pre-Effective Breach, the
calculation of the Pre-Effective Adjustment Amount, or the related adjustment of
the Conversion Ratio, the parties hereto shall resolve such dispute in
accordance with the procedures set forth in this Section 12.
12.02 Consent of the Parties.
----------------------
In the event of any dispute between the parties with respect to any
matter covered by this Agreement and Plan of Merger or the Escrow Agreement, the
parties shall first use their best efforts to resolve such dispute among
themselves. If the parties are unable to resolve the dispute within 15 calendar
days after the commencement of efforts to resolve the dispute, or within the 30-
day period referred to in Subsection 11.04(b) hereof in connection with any
dispute relating to the Pre-Effective Adjustment Amount or the related
adjustment of the Conversion Ratio, the dispute will be submitted to arbitration
in accordance with Subsection 12.03 hereof.
12.03 Arbitration.
-----------
(a) Either Peritus or Vista or, after the Effective Date, the
Stockholders' Representative may submit any matter referred to in Subsection
12.02 hereof to arbitration by notifying the other party hereto, in writing, of
such dispute. Within 10 days after receipt of such notice, each of Peritus, on
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the one hand, and Vista or the Stockholders' Representative, on the other hand,
shall designate in writing one arbitrator to resolve the dispute; provided that
if the parties cannot agree on an arbitrator within such 10-day period, the
arbitrator shall be selected by the American Arbitration Association. The
arbitrator so designated shall not be an employee, consultant, officer, director
or stockholder of any party hereto or any affiliate of any party to this
Agreement and Plan of Merger.
(b) Within 15 days after the designation of the arbitrator,
the arbitrator, Peritus and Vista (or the Stockholders' Representative, as
appropriate) shall meet, at which time Peritus and Vista (or the Stockholders'
Representative, as appropriate) shall be required to set forth in writing all
disputed issues and a proposed ruling on each such issue.
(c) The arbitrator shall set a date for a hearing, which shall
be no later than 30 days after the submission of written proposals pursuant to
paragraph (b) above, to discuss each of the issues identified by Peritus and
Vista (or the Stockholders' Representative, as appropriate). Each such party
shall have the right to be represented by counsel. The arbitration shall be
governed by the rules of the American Arbitration Association; provided that the
arbitrator shall have sole discretion with regard to the admissibility of
evidence.
(d) The arbitrator shall use his best efforts to rule on each
disputed issue within 30 days after the completion of the hearings described in
paragraph (c) above. The determination of the arbitrator as to the resolution of
any dispute shall be binding and conclusive upon all parties hereto. All rulings
of the arbitrator shall be in writing and shall be delivered to the parties
hereto.
(e) The prevailing party in any arbitration shall be entitled
to an award of reasonable attorneys' fees incurred in connection with the
arbitration. The non-prevailing party shall pay such fees, together with the
fees of the arbitrator and the costs and expenses of the arbitration.
(f) Any arbitration pursuant to this Subsection 12.03 shall be
conducted in Boston, Massachusetts. Any arbitration award may be entered in and
enforced by any court having jurisdiction thereover, and all of the parties
hereto hereby consent and commit themselves to the jurisdiction of the courts of
the Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts for purposes of the enforcement of any arbitration
award.
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<PAGE>
13. Brokers
-------
13.01 For Vista.
---------
Vista represents and warrants that no person, firm or corporation has
acted in the capacity of broker or finder on its behalf to bring about the
negotiation of this Agreement and Plan of Merger.
13.02 For Peritus.
-----------
Peritus represents and warrants that no person, firm or corporation
has acted in the capacity of broker or finder on its behalf to bring about the
negotiation of this Agreement and Plan of Merger.
14. Notices
-------
Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally or sent by telefax,
nationally recognized overnight courier, or registered or certified mail,
postage prepaid, addressed as follows or to such other address of which the
parties may have given notice:
To Peritus: Peritus Software Services, Inc.
304 Concord Road
Billerica, Massachusetts 01821
Attention: Allen K. Deary
Telephone: (508) 670-0800
Telefax: (508) 670-1173
With a copy to: Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: Peter D. Tarr, Esq.
Telephone: (617) 526-6000
Telefax: (617) 526-5000
To Vista: Vista Technologies Incorporated
Two Woodfield Lake
1109 Woodfield Lake
Suite 437
Schaumburg, Illinois 60173
Attention: Adarsh K. Arora
Telephone: (708) 706-9300
Telefax: (708) 706-9317
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<PAGE>
To the Stockholders: c/o Adarsh K. Arora
35 Carlyle Lane
Buffalo Grove, Illinois 60089
Unless otherwise specified herein, such notices or other communications shall be
deemed received on the date delivered to the recipient.
15. Successors and Assigns
----------------------
This Agreement and Plan of Merger shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that no party hereto may assign its respective rights or obligations
hereunder without the prior written consent of the other parties. Any
assignment in contravention of this provision shall be void.
16. Entire Agreement; Attachments
-----------------------------
(a) This Agreement and Plan of Merger, all Schedules and Exhibits
hereto, and all agreements and instruments to be delivered by the parties
pursuant hereto represent the entire understanding and agreement between the
parties hereto with respect to the subject matter hereof and supersede all prior
oral and written and all contemporaneous oral negotiations, commitments and
understandings between such parties.
(b) If the provisions of any Schedule or Exhibit to this Agreement
and Plan of Merger are inconsistent with the provisions of this Agreement and
Plan of Merger, the provisions of this Agreement and Plan of Merger shall
prevail. The Exhibits and Schedules attached hereto or to be attached hereafter
are hereby incorporated as integral parts of this Agreement and Plan of Merger.
17. Severability
------------
Any provision of this Agreement and Plan of Merger which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement and Plan
of Merger invalid, illegal or unenforceable in any other jurisdiction.
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<PAGE>
18. Investigation of the Parties
----------------------------
All representations and warranties contained herein which are made to
the best knowledge of a person or entity shall require that such person or
entity make reasonable investigation and inquiry with respect thereto to
ascertain the correctness and validity thereof.
19. Expenses
--------
Except as otherwise expressly provided herein, each party hereto shall
pay, and be solely responsible for, all fees and expenses (including, without
limitation, legal and accounting fees and expenses) incurred by such party in
connection with the Merger and the other transactions contemplated hereby.
20. Legal Fees
----------
In the event that legal proceedings are commenced by Peritus against
Vista or the Stockholders, or by Vista or the Stockholders (acting through the
Stockholders' Representative or otherwise) against Peritus, in connection with
this Agreement and Plan of Merger or the transactions contemplated hereby, the
party which does not prevail in such proceedings shall pay the reasonable
attorneys' fees and other costs and expenses, including investigation costs,
incurred by the prevailing party in such proceedings.
21. Further Assurances
------------------
From time to time, as and when required by Peritus or by its
successors and assigns, there shall be executed and delivered on behalf of Vista
and/or any Stockholder such deeds and other instruments, and there shall be
taken or caused to be taken by it such further and other action, as shall be
appropriate or necessary in order to vest or perfect in or to confirm of record
or otherwise in Peritus the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Vista, and otherwise to carry out the purposes of this Agreement
and Plan of Merger, and the officers and directors of Vista are fully authorized
in the name and on behalf of Vista or otherwise to take any and all such action
and to execute and deliver any and all such deeds and other instruments.
22. Amendment
---------
This Agreement and Plan of Merger may be amended by the Boards of
Directors of Vista and Peritus at any time prior to the Effective Date, provided
that an amendment made subsequent to the
-48-
<PAGE>
approval of this Agreement and Plan of Merger by the stockholders of either
Vista or Peritus shall not (i) alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of such
corporation, (ii) alter or change any term of the Articles of Organization of
Peritus to be effected by the Merger or (iii) alter or change any of the terms
and conditions of this Agreement and Plan of Merger if such alteration or change
would adversely affect the holders of any class or series thereof of such
corporation.
23. Governing Law
-------------
This Agreement and Plan of Merger and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
24. Section Headings; Number; Gender
--------------------------------
The section and subsection headings are for the convenience of the
parties and in no way alter, modify, amend, limit, or restrict the contractual
obligations of the parties. The number of all words shall include both singular
and plural, and the gender shall include feminine, masculine and neuter, unless
the context clearly indicates otherwise.
25. Counterparts
------------
This Agreement and Plan of Merger may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
-49-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement and Plan
of Merger to be executed on its behalf by its officers thereunto duly authorized
and its corporate seal to be thereto affixed, all as of the date first above
written.
PERITUS SOFTWARE SERVICES, INC.
By: /s/ Dominic C. Chan
-----------------------------
Name: DOMINIC C. CHAN
---------------------------
Title: President
--------------------------
By: /s/ Allen K. Deary
-----------------------------
Name: Allen K. Deary
---------------------------
Title: VP Finance
--------------------------
VISTA TECHNOLOGIES INCORPORATED
By: /s/ Adarsh K. Arora
-----------------------------
Name: ADARSH K. ARORA
---------------------------
Title: PRESIDENT & CEO
--------------------------
By: /s/ James C. Ferrans
-----------------------------
Name: JAMES C. FERRANS
---------------------------
Title: TREASURER
--------------------------
-50-
<PAGE>
STOCKHOLDERS:
/s/ Adarsh K. Arora
-------------------------------
Adarsh K. Arora
Address: 35 Carlyle Lane
Buffalo Grove, IL 60089
/s/ Burton Covnot
-------------------------------
Burton Covnot
Address: 864 Malibu Court
Carol Stream, IL 60188
/s/ James C. Ferrans
-------------------------------
James C. Ferrans
Address: 140 Christina Circle
Wheaton, IL 60187
/s/ David Hurst
-------------------------------
David Hurst
Address: 7616 N. Rogers
2nd Floor
Chicago, IL 60626
/s/ David Jakopac
-------------------------------
David Jakopac
Address: 112 Bright Ridge Drive
Schaumburg, IL 60194
/s/ Bernard Jordan
-------------------------------
Bernard Jordan
Address: 3344 Prospect St. N.W.
Washington, DC 20007
-51-
<PAGE>
/s/ Edith Ludwig
-------------------------------
Edith Ludwig
Address: 361 Millington Lane
Aurora, IL 60504
/s/ Arthur Molin
-------------------------------
Arthur Molin
Address: 9731 Fox Glen Road
Apt. #5A
Niles, IL 60714
/s/ Michael A. Sennett
-------------------------------
Michael A. Sennett
Address: 1425 Millcreek
Bloomington, IL 61704
/s/ Sowmitri Swamy
-------------------------------
Name: Sowmitri Swamy
Address: 21W720 Clifford
Glen Ellyn, IL 60137
-52-
<PAGE>
EXHIBIT 10.38
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
May 9, 1997
Mr. Douglas A. Catalano
Peritus Software Services, Inc.
304 Concord Road
Billerica, MA 01821
Re: Joint Marketing Agreement
Gentlemen:
This letter sets forth the intent of VIASOFT, Inc. ("VIASOFT") and
Peritus Software Services, Inc. ("PERITUS") to enter into a joint marketing
agreement upon the terms and conditions outlined in this letter, subject to the
negotiation, execution and delivery of a mutually satisfactory definitive
agreement (the "Definitive Agreement") relating to the proposed transaction (the
"Proposed Transaction"). The Definitive Agreement will contain usual and
customary representations, warranties, covenants and other provisions for
agreements of this type and shall be subject to the terms and conditions set
forth herein, among others.
1. VIASOFT Marketing of Automate 2000. VIASOFT will market PERITUS's
----------------------------------
software product Automate 2000, and such related PERITUS services as the parties
may agree on, to VIASOFT's customers in the United States and Canada as a
valuable tool for converting customer software code to make it Year 2000
compliant. For sales of Automate 2000 "obtained by" VIASOFT, PERITUS will pay
VIASOFT a commission equal to ***** of end-user invoice for software license
fees. VIASOFT will not have any licensing or sublicensing rights to Automate
2000 and will not have the right to set prices for Automate 2000. Each VIASOFT
customer who purchases or leases Automate 2000 will execute a separate software
license agreement with PERITUS. A sale of Automate 2000 will be deemed "obtained
by" VIASOFT whenever Automate 2000 is used to process a customer's code that has
been preprocessed into "FRUs" (as defined in paragraph 8 below) pursuant to
VIASOFT's proprietary technology. VIASOFT has provided and will continue to
<PAGE>
May 9, 1997 Confidential materials omitted and filed separately
Page 2 with the Securities and Exchange Commission.
Asterisks denote such omissions.
provide PERITUS with the technical specifications for VIASOFT's FRU technology
to assist PERITUS in adapting its Automate 2000 product to maximize the
efficiency with which that software product converts the software code of
VIASOFT's clients, and to ensure that Automate 2000 will, after converting a
VIASOFT customer's software, produce "TRUs" that are ready for testing at
VIASOFT or the customer's site. After referring a customer to Automate 2000,
VIASOFT will provide reasonable assistance to PERITUS in obtaining the
customer's execution of a license agreement with PERITUS. PERITUS will use its
best efforts to fill all orders for products received from VIASOFT customer.
2. PERITUS Marketing of FastPath 2000. PERITUS will market VIASOFT's
----------------------------------
year 2000 offering known as FastPath 2000 (methodology and related software) to
PERITUS's customers in the United States and Canada as a complete Year 2000
solution product set. For sales of FastPath 2000 obtained by PERITUS, VIASOFT
will pay PERITUS a commission equal to ***** of end-user invoice for license
fees. PERITUS will not have any licensing or sublicensing rights to Fast Path
2000 and will not have the right to set prices for Fast Path 2000. Each PERITUS
customer who purchases or leases FastPath 2000 will execute a separate software
license agreement with VIASOFT. After referring a customer to FastPath 2000,
PERITUS will provide reasonable assistance to VIASOFT in obtaining the
customer's execution of a license Agreement with VIASOFT. The parties will set
forth in the Definitive Agreement in more detail the terms under which PERITUS
shall be deemed to have obtained a sale of FastPath 2000. VIASOFT will use its
best efforts to fill all orders for products received from PERITUS customers.
3. International Sales. The parties may include provisions in the
-------------------
Definitive Agreement relating to application of the terms described in
paragraphs 1 and 2 to sales of the parties' respective products outside of the
United States and Canada. If no agreement is reached on this issue, the
Definitive Agreement will be confined to sales in the United States and Canada.
4. Sales Through Solutions Providers. The parties may include provision
---------------------------------
in the Definitive Agreement describing the means by which a solution provider
may be included in the joint marketing efforts described in this Agreement. The
parties currently envision that both VIASOFT's and PERITUS's solution providers
will be provided with the "Enabling Technology" (as defined in paragraph 8
below) and encouraged to refer their Year 2000 customers to PERITUS and VIASOFT.
5. Training. The Definitive Agreement will contain provisions providing
--------
for the mutual training of each party's technical, sales and marketing forces
concerning the other party's product. In general, each side will bear its own
training
<PAGE>
May 9, 1997
Page 3
costs and neither party will charge the other for employee or trainer time
incurred in the training programs.
6. Mutual Warranties. Each party (the "warranting party") will
-----------------
represent to the other that the warranting party has sufficient ownership rights
in its software to license it to the other's customers and also that the
warranting party's products generally conform to the written technical
specifications for such products published by the warranting party.
7. Mutual Indemnification. Each party (the "indemnifying party") will
----------------------
agree to indemnify the other from customer or third party claims relating to the
indemnifying party's software products.
8. Confidential Information. The Definitive Agreement will contain
------------------------
provisions relating to confidential information and nondisclosure similar to
those contained in the mutual Nondisclosure Agreement previously signed by the
parties effective September 29, 1996 (the "NDA"). The Parties acknowledge that
the NDA continues in effect and governs the parties exchange of information and
technologies pursuant to this letter, and shall survive the execution of both
this letter and a Definitive Agreement. Peritus specifically acknowledges that
VIASOFT has previously provided and will continue to provide to PERITUS detailed
written technical specifications designed to enable code conversion factories
such as PERITUS to process customer code units, known as Factory Ready Units
("FRUs"), and return converted code units back into the customers environment in
a test ready state, known as Test Ready Units ("TRUs") (this technology,
including the written technical specifications described above, the VIASOFT
proprietary technology for generating FRUs, and the VIASOFT technology for
correctly formatting FRUs and TRUs, is collectively referred to as the "Enabling
Technology"). This Enabling Technology constitutes intellectual property and
valuable trade secrets owned by VIASOFT and shall not be used by PERITUS for any
purpose other than the Proposed Transaction contemplated by this letter. To
date, VIASOFT has provided portions of the Enabling Technology to PERITUS for
the purpose of allowing PERITUS to evaluate the viability of adapting Automate
2000 to input FRUSs, convert customer code contained within FRUs, and output
TRUs. Pursuant to the Definitive Agreement, VIASOFT will grant a royalty-free,
non-exclusive and non-transferable license to PERITUS to use the Enabling
Technology for the purpose of modifying Automate 2000 to provide conversion
services to VIASOFT customers and agreed upon solution providers.
9. No Exclusivity. Under the Definitive Agreement each of VIASOFT and
--------------
PERITUS will remain free to refer its respective customers to products and
services that may compete directly or indirectly with those of the other party,
including the particular products and services described in this letter of
intent. In addition, each
<PAGE>
May 9, 1997
Page 4
party will also retain the right to sell software and services to the other's
customers, competitors and customers of the other's competitors.
10. Quarterly Reports. Each party will provide the other with quarterly
-----------------
reports of commissions owed within 20 days after the end of each calendar
quarter. Commissions owned for a quarter will be paid within 45 days after the
end of the quarter.
11. Term. The initial term of the Definitive Agreement will be
----
approximately three years (terminating as of June 30, 2000). The Definitive
Agreement will automatically renew for additional one year terms thereafter
unless either party provides written notice of nonrenewal at least 30 days in
advance of a renewal term.
12. Governing Law; ADR. The Definitive Agreement shall be governed by
------------------
and construed in accordance with the internal laws, and not the laws pertaining
to conflicts of laws, of the State of Arizona. The Definitive Agreement shall
provide for dispute resolution procedures including negotiation, mediation and
arbitration to resolve normal disputes that arise between the parties under the
agreement. Each party would retain the right to seek judicial relief, such as an
injunction, in the event its intellectual property is being infringed.
13. Publicly. The parties will keep the terms of this letter
--------
confidential and shall not make any public announcement concerning its contents
until after execution of a Definitive Agreement. Upon execution of a Definitive
Agreement, the parties shall cooperate with each other in the development of a
press announcement, if any, concerning the transactions contemplated by the
Definitive Agreement. In addition, each party shall make reasonable efforts to
provide the other with advance notice of the content and timing of all public
announcements, press releases or press conference texts with respect to this
Definitive Agreement or its subject matter, and an opportunity to comment
thereon. If, prior to the execution of a Definitive Agreement, either party
believes it is necessary or appropriate, in accordance with its obligations
under federal or state securities laws to make a public announcement or disclose
the contents or existence of this letter in publicly filed documents, each party
shall use its best efforts to notify the other party and have the other party
give prior approval to the contents of any such disclosure.
14. Definitive Agreement. VIASOFT and PERITUS shall negotiate in good
--------------------
faith to enter into the Definitive Agreement by June 1, 1997.
15. Non-Binding Nature of Letter; Binding Provisions. Except for the
------------------------------------------------
provisions set forth in paragraph 8, with respect to rights to and the
confidentiality of the Enabling Technology, and paragraph 13, which are intended
to be and are
<PAGE>
May 9, 1997
Page 5
binding obligations between the parties, this letter is solely a statement of a
present intention of the parties made in good faith and is not intended to
create any binding obligations.
If this proposal is acceptable, please so indicate by signing where
indicated below and mailing or faxing me a copy of this letter so signed. In the
meantime, if you would like to discuss any aspect of our proposal, please do not
hesitate to give me a call.
Sincerely,
/s/Steve Whitman
Steve Whiteman
President
Accepted and Agreed:
Peritus Software Services, Inc.
By /s/Douglas A. Catalano
---------------------------------
Douglas A. Catalano, President
Date: 5/9/97
-------------------------------
<PAGE>
Exhibit 11
Peritus Software Services, Inc.
Statement re computation of unaudited pro forma net income (loss) per share
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1997
----------------- --------------
<S> <C> <C>
Net income (loss), as reported $ (4,921,000) $ 406,000
Redeemable stock preference items:
Accrual of cumulative dividends on Series A and Series B
redeemable convertible preferred stock (689,000) (233,000)
Accretion to redemption value of Series A and Series B
redeemable convertible preferred stock (347,000) --
Accretion to redemption value of redeemable common stock right (66,000) (26,000)
----------------- --------------
Total redeemable stock preference items (1,102,000) (259,000)
----------------- --------------
Net income (loss) attributable to common stockholders $ (6,023,000) $ 147,000
================= ==============
Weighted average shares outstanding:
A. Shares attributable to common stock outstanding 5,876,224 5,888,142
B. Shares attributable to convertible preferred stock outstanding 1,517,605 1,903,525
C. Shares attributable to common stock equivalents -- 1,619,557
D. Shares pursuant to APB 15, paragraph 38(a) 3,258,766 3,258,766
----------------- --------------
Shares used in computing unaudited pro forma net income (loss) per share 10,652,595 12,669,990
================= ==============
Unaudited pro forma net income (loss) per share $ (0.46) $ 0.03
================= ==============
</TABLE>
<PAGE>
EXHIBIT 21
----------
Subsidiaries
------------
Name Address of Jurisdiction of
---- ---------- ----------------
Principal Office Incorporation
---------------- -------------
1. Persist Servicios Software c/o Santa Barbara, Spain
24-Bajo 8870 Sitges
Barcelona, Spain
2. Peritus Software Services 304 Concord Road Massachusetts
Securities Corporation Billerica, MA 01821
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 14, 1997, relating to
the financial statements of Peritus Software Services, Inc., which appears in
such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
Boston, MA
May 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 7,388 5,022
<SECURITIES> 0 0
<RECEIVABLES> 7,788 7,853
<ALLOWANCES> 30 30
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,265 13,083
<PP&E> 3,342 3,629
<DEPRECIATION> 1,372 1,587
<TOTAL-ASSETS> 17,725 15,712
<CURRENT-LIABILITIES> 7,047 4,677
<BONDS> 0 0
12,019 12,252
0 0
<COMMON> 2,371 2,373
<OTHER-SE> (5,673) (5,533)
<TOTAL-LIABILITY-AND-EQUITY> 17,725 15,712
<SALES> 0 0
<TOTAL-REVENUES> 19,235 7,859
<CGS> 0 0
<TOTAL-COSTS> 11,581 3,461
<OTHER-EXPENSES> 12,398 3,942
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 344 46
<INCOME-PRETAX> (5,040) 483
<INCOME-TAX> (143) 48
<INCOME-CONTINUING> (4,879) 435
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,921) 406
<EPS-PRIMARY> (0.46)<F1> 0.03<F1>
<EPS-DILUTED> 0 0
<FN>
<F1>UNAUDITED PRO FORMA NET INCOME (LOSS) PER SHARE ASSUMING CONVERSION OF PREFERRED
STOCK.
</FN>
</TABLE>
