SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
PICTURETEL CORPORATION
-------------------------
(Name of Issuer)
Common Stock
-------------------------
(Title of Class of Securities)
720035302
-------------------------
(CUSIP Number)
F. Thomas Dunlap, Jr.
Vice President, General Counsel and Secretary
Intel Corporation
2200 Mission College Boulevard
Santa Clara, CA 95052
Telephone: (408) 765-8080
-------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
January 18, 1999
-------------------------
(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-
1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with this
statement [ ].
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 (the "Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act.
Page 1 of 67
The Exhibit Index is on page 14.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 2 of 67 Pages
1. NAME OF REPORTING PERSON Intel
Corporation
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE 94-1672743
PERSON
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A (a) [ ]
GROUP (b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
NUMBER OF 7. SOLE VOTING POWER 4,478,708(1)
SHARES
BENEFICIALLY 8. SHARED VOTING POWER N/A
OWNED BY
EACH 9. SOLE DISPOSITIVE POWER 4,478,708(2)
REPORTING
PERSON WITH 10. SHARED DISPOSITIVE POWER N/A
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,478,708(3)
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW
(11) 10.05%(4)
14. TYPE OF REPORTING PERSON CO
(1) Assumes a purchase price of $6.81 per share of Series A
Preferred Stock. See Item 4.
(2) Assumes a purchase price of $6.81 per share of Series A
Preferred Stock. See Item 4.
(3) Assumes a purchase price of $6.81 per share of Series A
Preferred Stock. See Item 4.
(4) Assumes a purchase price of $6.81 per share of Series A
Preferred Stock. See Item 4.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 3 of 67 Pages
Item 1. Security and Issuer.
- ------ -------------------
(a) Name and Address of Principal Executive Offices
of Issuer:
----------------------------------------------
PictureTel Corporation
100 Minuteman Road
Andover, Massachusetts 01810
(b) Title and Class of Equity Securities:
------------------------------------
Series A Convertible Preferred Stock (such
Series A Convertible Preferred Stock would be
convertible into shares of PictureTel
Corporation's Common Stock).
Item 2. Identity and Background.
- ------ -----------------------
(a) Name of Person Intel Corporation (the
Filing: "Reporting Person")
(b) Principal Manufacturer of microcomputer
Business: components, modules and
systems
(c) Address of Principal Business and Principal
Office:
---------------------------------------------
2200 Mission College Boulevard
Santa Clara, CA 95052-8119
(d) Criminal Proceedings:
--------------------
During the last five years neither the
Reporting Person nor any officer or director of
the Reporting Person has been convicted in any
criminal proceeding.
(e) Civil Proceedings:
-----------------
During the last five years neither the
Reporting Person nor any officer or director of
the Reporting Person has been party to any
civil proceeding of a judicial or
administrative body of competent jurisdiction
as a result of which such person would have
been subject to any judgment, decree or final
order enjoining future violations of or
prohibiting or mandating activities subject to
Federal or State securities laws or finding any
violation with respect to such laws.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 4 of 67 Pages
(f) Place of Organization: Delaware
---------------------
Attached hereto as Appendix A is information
required by this Item 2 with respect to the
executive officers and directors of the
Reporting Person. All such individuals are
U.S. citizens, except as otherwise indicated on
Appendix A.
Item 3. Source and Amount of Funds or Other Consideration.
- ------ -------------------------------------------------
(a) Source of Funds:
Funds for the purchase of the Shares (as
defined in Item 4) will be derived from the
Reporting Person's working capital.
(b) Amount of Funds:
The Reporting Person would pay Thirty Million,
Five Hundred Thousand Dollars ($30,500,000) to
acquire the Shares (as defined in Item 4).
Item 4. Purpose of the Transaction.
- ------ --------------------------
Pursuant to a Stock Purchase and Investor Rights
Agreement, dated January 18, 1999, between the
Reporting Person and the Issuer (the "Purchase
Agreement"), the Reporting Person has agreed to
purchase from Issuer the number of shares of Issuer's
Series A Preferred Stock (the "Shares") equal to
Thirty Million, Five Hundred Thousand Dollars
($30,500,000), divided by a per share purchase price
equal to the lower of (I) Six Dollars and Eighty-One
Cents ($6.81), or (ii) the average of the closing
prices of one share of Issuer's Common Stock on the
Nasdaq National Market during the five trading day
period ending on the second trading day immediately
preceding the closing of the purchase of the Shares.
The Reporting Person's obligation to purchase the
Shares is contingent on the satisfaction of certain
conditions, including the Reporting Person's
satisfaction with its due diligence review of the
Issuer, the approval of the purchase of the Shares by
the Reporting Person's Executive Committee and no
material adverse change occurring to the Issuer after
date of the Agreement and prior to closing.
The Reporting Person will hold the Shares as an
investment. Depending on the Reporting Person's
evaluation of market conditions, market price,
alternative investment opportunities, liquidity needs
and other factors, the Reporting Person will from time
to time explore opportunities for liquidating all or a
portion of the Shares (or the shares of Common Stock
into which the Shares are convertible), through one or
more sales pursuant to public or private offerings or
otherwise. In such event, the Reporting Person may
determine to retain some portion of the Shares (or
such underlying shares of Common Stock) as an
investment.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 5 of 67 Pages
Item 5. Interests in Securities of the Issuer.
- ------ -------------------------------------
The information contained in Item 4 is incorporated
herein by this reference.
(a) Number of Shares Beneficially Owned: 4,478,708
Right to Acquire: 4,478,708
Percent of Class: 10.05%
(b) Sole Power to Vote, Direct the Vote
of, or Dispose of Shares: 4,478,708
(c) Recent Transactions: See Item 4.
(d) Rights with Respect to Dividends or N/A
Sales Proceeds:
(e) Date of Cessation of Five Percent N/A
Beneficial Ownership:
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the
Issuer.
- ------ ----------------------------------------------------
Pursuant to the Purchase Agreement (as defined in Item
4), the Reporting Person has, under certain
circumstances, various rights related to: (a)
registration of the Shares and the Common Stock
issuable upon conversion or exchange of the Series A
Preferred Stock pursuant to certain shelf, demand and
piggyback registration rights granted to the Reporting
Person; (b) a representative of the Reporting Person
observing board of director and committee meetings of
the Issuer in a non-voting capacity; (c) certain
rights of consent, notification and negotiation in
connection with certain sales of securities,
acquisitions, asset sales, grants of licenses and
other corporate events of the Issuer or any of its
significant subsidiaries; and (d) the participation in
future issuances of securities by the Issuer and the
maintenance of the Reporting Person's percentage
ownership of the Issuer. Pursuant to a Letter
Agreement, dated January 18, 1999, between the Issuer
and the Reporting Person, the Issuer has certain
rights of notification and negotiation in connection
with certain proposed sales by the Reporting Person of
the Shares or Common Stock issuable upon conversion of
the Shares.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 6 of 67 Pages
Item 7. Material to Be Filed as Exhibits.
- ------ --------------------------------
Exhibit 1 PictureTel Corporation Stock Purchase and
Investor Rights Agreement, dated
January 18, 1999.
Exhibit 2 Press Releases of PictureTel Corporation
and Intel Corporation, dated January 19
and 20, 1999.
Exhibit 3 Letter Agreement, dated January 18, 1999,
between Intel Corporation and PictureTel
Corporation.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 7 of 67 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated as of January ____, 1999
INTEL CORPORATION
By: /s/F. Thomas Dunlap, Jr.
------------------------
F. Thomas Dunlap, Jr.
Vice President, General
Counsel and Secretary
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 8 of 67 Pages
APPENDIX A
DIRECTORS
The following is a list of all Directors of Intel Corporation and
certain other information with respect to each Director: All
Directors are United States citizens except as indicated below.
Name: Craig R. Barrett
Business 2200 Mission College Boulevard, Santa Clara,
Address: CA 95052
Principal President and Chief Executive Officer
Occupation:
Name, principal Intel Corporation, a manufacturer of
business and microcomputer components, modules and systems.
address of 2200 Mission College Boulevard
corporation or Santa Clara, CA 95052
other
organization in
which employment
is conducted:
Name: John Browne
Business BP Amoco p.l.c., Britannic House, 1 Finsbury
Address: Circus, London EC2M 7BA
Principal Group Chief Executive
Occupation:
Name, principal The British Petroleum Company plc, an
business and integrated oil company.
address of Britannic House, 1 Finsbury Circus
corporation or London EC2M 7BA
other
organization in
which employment
is conducted:
Citizenship: British
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 9 of 67 Pages
Name: Winston H. Chen
Business Paramitas Foundation, 3945 Freedom Circle,
Address: Suite 760, Santa Clara, CA 95054
Principal Chairman
Occupation:
Name, principal Paramitas Foundation, a charitable foundation.
business and 3945 Freedom Circle, Suite 760
address of Santa Clara, CA 95054
corporation or
other
organization in
which employment
is conducted:
Name: Andrew S. Grove
Business 2200 Mission College Boulevard, Santa Clara,
Address: CA 95052
Principal Chairman of the Board of Directors
Occupation:
Name, principal Intel Corporation, a manufacturer of
business and microcomputer components, modules and systems.
address of 2200 Mission College Boulevard
corporation or Santa Clara, CA 95052
other
organization in
which employment
is conducted:
Name: D. James Guzy
Business 1340 Arbor Road, Menlo Park, CA 94025
Address:
Principal Chairman
Occupation:
Name, principal The Arbor Company, a limited partnership
business and engaged in the electronics and computer
address of industry.
corporation or 1340 Arbor Road
other Menlo Park, CA 94025
organization in
which employment
is conducted:
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 10 of 67 Pages
Name: Gordon E. Moore
Business 2200 Mission College Boulevard, Santa Clara,
Address: CA 95052
Principal Chairman Emeritus of the Board of Directors
Occupation:
Name, principal Intel Corporation, a manufacturer of
business and microcomputer components, modules and systems.
address of 2200 Mission College Boulevard
corporation or Santa Clara, CA 95052
other
organization in
which employment
is conducted:
Name: David S. Pottruck
Business 101 Montgomery Street, San Francisco, CA 94104
Address:
Principal President and Co-Chief Executive Officer
Occupation:
Name, principal The Charles Schwab Corporation, an investment
business and company
address of 101 Montgomery Street
corporation or San Francisco, CA 94104
other
organization in
which employment
is conducted:
Name: Arthur Rock
Business One Maritime Plaza, Suite 1220, San Francisco,
Address: CA 94111
Principal Venture Capitalist
Occupation:
Name, principal Arthur Rock and Company, a venture capital
business and firm.
address of One Maritime Plaza, Suite 1220
corporation or San Francisco, CA 94111
other
organization in
which employment
is conducted:
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 11 of 67 Pages
Name: Jane E. Shaw
Business 1310 Orleans Drive, Sunnyvale, CA 94089
Address:
Principal Chairman and Chief Executive Officer
Occupation:
Name, principal AeroGen, Inc., a private company specializing
business and in controlled delivery of drugs to the lungs
address of 1310 Orleans Drive
corporation or Sunnyvale, CA 94089
other
organization in
which employment
is conducted:
Name: Leslie L. Vadasz
Business 2200 Mission College Boulevard, Santa Clara,
Address: CA 95052
Principal Senior Vice President, Director, Corporate
Occupation: Business Development
Name, principal Intel Corporation, a manufacturer of
business and microcomputer components, modules and systems.
address of 2200 Mission College Boulevard
corporation or Santa Clara, CA 95052
other
organization in
which employment
is conducted:
Name: David B. Yoffie
Business Harvard Business School, Morgan Hall 247,
Address: Soldiers Field Road, Boston, MA 92163
Principal Max and Doris Starr Professor of International
Occupation: Business Administration
Name, principal Harvard Business School, an educational
business and institution.
address of Harvard Business School
corporation or Morgan Hall 247,Soldiers Field Road
other Boston, MA 92163
organization in
which employment
is conducted:
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 12 of 67 Pages
Name: Charles E. Young
Business 10920 Wilshire Boulevard, Los Angeles, CA
Address: 90024
Principal Chancellor Emeritus
Occupation:
Name, principal University of California at Los Angeles, an
business and educational institution.
address of 10920 Wilshire Boulevard
corporation or Los Angeles, CA 90024
other
organization in
which employment
is conducted:
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 13 of 67 Pages
EXECUTIVE OFFICERS
The following is a list of all executive officers of Intel
Corporation excluding executive officers who are also directors.
Unless otherwise indicated, each officer's business address is
2200 Mission College Boulevard, Santa Clara, California 95052-
8119, which address is Intel Corporation's business address. All
executive officers are United States citizens except as indicated
below.
Name: Paul S. Otellini
Title: Executive Vice President, General Manager, Intel
Architecture Business Group
Name: Gerhard H. Parker
Title: Executive Vice President, General Manager, New
Business Group
Name: Andy D. Bryant
Title: Senior Vice President and Chief Financial Officer
Name: Sean M. Maloney
Title: Senior Vice President, Director, Sales and Marketing
Group
Citizenshi British
p:
Name: Michael R. Splinter
Title: Senior Vice President, General Manager, Technology
and Manufacturing Group
Name: Albert Y. C. Yu
Title: Senior Vice President, General Manager,
Microprocessor Products Group
Name: F. Thomas Dunlap, Jr.
Title: Vice President, General Counsel and Secretary
Name: Arvind Sodhani
Title: Vice President, Treasurer
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 14 of 67 Pages
EXHIBIT INDEX
Sequentially
Numbered
Exhibit No. Document Page
- ---------- ------------------------------------ ------------
Exhibit 1 PictureTel Corporation Stock Purchase
and Investor Rights Agreement, dated 15
January 18, 1999.
Exhibit 2 Press Releases of PictureTel
Corporation and Intel Corporation, 59
dated January 19 and 20, 1999.
Exhibit 3 Letter Agreement, dated January 18,
1999, between Intel Corporation and 66
PictureTel Corporation.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 15 of 67 Pages
EXHIBIT 1
PICTURETEL CORPORATION
STOCK PURCHASE AND INVESTOR RIGHTS AGREEMENT
This Stock Purchase and Investor Rights Agreement (this
"Agreement") is made and entered into as of January 18, 1999, by
and between Picturetel Corporation, a Delaware corporation (the
"Company"), and Intel Corporation, a Delaware corporation (the
"Investor").
RECITALS
WHEREAS, the Company desires to sell to the Investor, and the
Investor desires to purchase from the Company, shares of Series A
Preferred Stock, par value $.01 per share, of the Company (the
"Series A Preferred Stock"), on the terms and conditions set
forth in this Agreement;
WHEREAS, such Series A Preferred Stock will be convertible into
shares of the Common Stock, par value $.01 per share, of the
Company (the "Common Stock");
NOW, THEREFORE, in consideration of the foregoing recitals, the
mutual promises hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
(a) Authorization. The Company's Board of Directors will,
prior to the Closing, authorize the issuance, pursuant to the
terms and conditions of this Agreement, of shares of Series A
Preferred Stock, having the rights, preferences, privileges and
restrictions set forth in the Certificate of Designations,
Preferences and Other Rights of Series A Preferred Stock in the
form attached hereto as Exhibit A (the "Certificate of
Designations") and in an amount equal to the number of Purchased
Shares (as defined in Section 1(b)), and shall further reserve
for issuance upon conversion of the Series A Preferred Stock the
number of shares of Common Stock issuable upon the conversion of
the Purchased Shares.
(b) Agreement to Purchase and Sell Securities. The Company
hereby agrees to issue to the Investor at the Closing (as defined
below), and the Investor hereby agrees to acquire from the
Company at the Closing, the number of shares of Series A
Preferred Stock (collectively, the "Purchased Shares") equal to
Thirty Million, Five Hundred Thousand Dollars ($30,500,000) (the
"Purchase Price") divided by the Per Share Purchase Price (as
defined below), rounded up to the nearest whole share. As used
in this Agreement, "Per Share Purchase Price" equals the lower
of: (i) Six Dollars and Eighty-One Cents ($6.81); or (ii) the
average of the closing prices of one share of the Common Stock on
the Nasdaq National Market during the five trading day period
ending on the second trading day immediately preceding the
Closing Date.
(c) Use of Proceeds. The Company intends to apply the net
proceeds from the sale of the Purchased Shares for working
capital and other general corporate purposes.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 16 of 67 Pages
2. CLOSING. The purchase and sale of the Purchased Shares
shall take place at the offices of Gibson, Dunn & Crutcher LLP,
1530 Page Mill Road, Palo Alto, California, at 10:00 a.m.
California time, within three (3) business days after the
conditions set forth in Sections 5 and 6 have been satisfied (or
waived by the party entitled to waive any such conditions), or at
such other time and place as the Company and the Investor
mutually agree upon (which time and place are referred to in this
Agreement as the "Closing"). At the Closing, the Company will
deliver to the Investor certificates representing the Purchased
Shares against delivery to the Company by the Investor of the
Purchase Price in cash paid by wire transfer of funds to the
Company. Closing documents may be delivered by facsimile with
original signature pages sent by overnight courier. The date of
the Closing is referred to herein as the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Investor that the
statements in this Section 3 are true and correct, except as set
forth in the Disclosure Letter (as defined in Section 7(a)(ii)):
(a) Organization Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
corporate power and authority required to (a) carry on its
business as presently conducted, and (b) enter into this
Agreement and the other agreements, instruments and documents
contemplated hereby, and to consummate the transactions
contemplated hereby and thereby. The Company is qualified to do
business and is in good standing in each jurisdiction in which
the failure to so qualify would have a Material Adverse Effect.
As used in this Agreement, "Material Adverse Effect" means a
material adverse effect on, or a material adverse change in, or a
group of such effects on or changes in, the business, operations,
financial condition, results of operations, prospects, assets or
liabilities of the applicable party and its subsidiaries, taken
as a whole.
(b) Capitalization. The capitalization of the Company,
without giving effect to the transactions contemplated by this
Agreement, is as follows. The authorized stock of the Company
consists only of Ninety-Five Million (95,000,000) shares of
Common Stock, of which Forty Million, Sixty-Seven Thousand, Seven
Hundred and Eleven (40,067,711) shares were issued and
outstanding as of December 31, 1998, and Fifteen Million
(15,000,000) shares of Preference Stock, including Eight Hundred
Thousand (800,000) shares of Junior Preference Stock reserved for
issuance under the Rights Agreement dated as of March 25, 1992
(the "Rights Agreement") between the Company and The First
National Bank of Boston, as Rights Agent, none of which is issued
or outstanding on the date hereof. All such shares of Common
Stock have been duly authorized, and all such issued and
outstanding shares of Common Stock have been validly issued, are
fully paid and nonassessable and are free and clear of all liens,
claims and encumbrances, other than any liens, claims or
encumbrances created by or imposed upon the holders thereof. As
of the date hereof, the Company has also reserved Eight Million,
Fifteen Thousand, One Hundred Twenty (8,015,120) shares of Common
Stock for issuance upon exercise of options or other stock awards
granted to officers, directors, employees or independent
contractors or affiliates of the Company under the Company's 1984
Equity Plan, the Art Fatum Stock Option Plan, the Bruce Bond
Stock Option Plan, the Directors Stock Option Plan, the Equity
Incentive Plan, the Gary Bond Stock Option Plan, the Jim
Finnegan Stock Option Plan, the MultiLink 1984 Stock Option Plan,
the MultiLink 1986 Stock Option Plan, the MultiLink
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 17 of 67 Pages
1987 Stock Option Plan, the MultiLink 1996 Stock Option Plan and
the Starlight Stock Option Plan. As of the date hereof, of the
Eight Million, Fifteen Thousand, One Hundred Twenty (8,015,120)
shares of Common Stock reserved for issuance upon exercise of
options, Six Million, Six Hundred Eighty-Six Thousand, Eight
Hundred Thirty-One (6,686,831) shares remained subject to
outstanding options. All shares of Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and
nonassessable. There are no other equity securities, options,
warrants, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound
obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend or enter into any such
equity security, option, warrant, call, right, commitment or
agreement. The Company does not have any subsidiaries, nor does
the Company own any capital stock, assets comprising the business
of, obligations of, or any other interest (including any equity
or partnership interest) in, or any outstanding loan or advance
to or from, any person or entity.
(c) Due Authorization. All corporate actions on the part
of the Company, its officers, directors and stockholders
necessary for the authorization, execution, delivery of, and the
performance of all obligations of the Company under this
Agreement, and the authorization, issuance, reservation for
issuance and delivery of all of the Purchased Shares being sold
under this Agreement, and all Common Stock issuable upon
conversion of the Purchased Shares, have been or will be taken,
and this Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with their terms, except (a) as may be limited by (i)
applicable bankruptcy, insolvency, reorganization or others laws
of general application relating to or affecting the enforcement
of creditors' rights generally and (ii) the effect of rules of
law governing the availability of equitable remedies and (b) as
rights to indemnity or contribution may be limited under federal
or state securities laws or by principles of public policy
thereunder.
(d) Valid Issuance of Stock.
(i) Valid Issuance. The shares of Series A Preferred
Stock to be issued pursuant to this Agreement, and the shares of
Common Stock issuable upon conversion thereof, will be, upon
payment therefor by the Investor in accordance with this
Agreement, or conversion in accordance with the Certificate of
Designations, duly authorized, validly issued, fully paid and non-
assessable.
(ii) Compliance with Securities Laws. Assuming the
correctness of the representations made by the Investor in
Section 4 hereof, the Purchased Shares will be issued to the
Investor in compliance with applicable exemptions from (i) the
registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act") and
(ii) the registration and qualification requirements of all
applicable securities laws of the states of the United States.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 18 of 67 Pages
(e) Governmental Consents. No consent, approval, order or
authorization of, or registration qualification, designation,
declaration or filing with, or notice to, any federal, state or
local governmental authority on the part of the Company is
required in connection with the issuance of the Purchased Shares
to the Investor, or the consummation of the other transactions
contemplated by this Agreement, except for: (i) compliance with
the HSR Requirements (as defined below) that may be required for
the conversion of the Series A Preferred Stock; (ii) the listing
of the Common Stock issuable upon conversion of the Series A
Preferred Stock on the Nasdaq National Market and (iii) the
filing of the Certificate of Designations with the Secretary of
State of the State of Delaware. All such qualifications and
filings will, in the case of qualifications, be effective on the
Closing and will, in the case of filings, be made within the time
prescribed by law. As used herein, the term "HSR Requirements"
means compliance with the filing and other requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act").
(f) Non-Contravention. The execution, delivery and
performance of this Agreement by the Company, and the
consummation by the Company of the transactions contemplated
hereby (including issuance of the Purchased Shares, and issuance
of shares of Common Stock upon conversion of the Purchased
Shares), do not and will not (i) contravene or conflict with the
Certificate of Incorporation or Bylaws of the Company; (ii)
constitute a violation of any provision of any federal, state,
local or foreign law binding upon or applicable to the Company;
or (iii) constitute a default or require any consent under, give
rise to any right of termination, cancellation or acceleration
of, or to a loss of any benefit to which the Company is entitled
under, or result in the creation or imposition of any lien, claim
or encumbrance on any assets of the Company under, any contract
to which the Company is a party or any permit, license or similar
right relating to the Company or by which the Company may be
bound or affected.
(g) Litigation. There is no action, suit, proceeding,
claim, arbitration or investigation ("Action") pending or, to the
best of the Company's knowledge, threatened: (a) against the
Company, its activities, properties or assets, or any officer,
director or employee of the Company in connection with such
officer's, director's or employee's relationship with, or actions
taken on behalf of, the Company, or (b) that seeks to prevent,
enjoin, alter or delay the transactions contemplated by this
Agreement (including issuance of the Purchased Shares). The
Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. No Action by the Company
is currently pending nor does the Company intend to initiate any
Action that is reasonably likely to be material to the Company.
(h) Compliance with Law and Charter Documents. The Company
is not in violation or default of any provisions of its
Certificate of Incorporation or Bylaws, both as amended. The
Company has complied in all material respects and is in material
compliance with all applicable statutes, laws, rules, regulations
and orders of the United States of America and all states
thereof, foreign countries and other governmental bodies and
agencies having jurisdiction over the Company's business or
properties.
(i) SEC Documents.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 19 of 67 Pages
(1) Reports. The Company has furnished to the
Investor prior to the date hereof a complete and correct list of
all registration statements, reports and proxy statements filed
by the Company with the SEC on or after December 31, 1997 (the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, its Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, June 30 and September 27, 1998
and all such other registration statements, reports and proxy
statements are collectively referred to herein as the "SEC
Documents"). Each of the SEC Documents, as of the respective
date thereof (or if amended or superseded by a filing prior to
the Closing Date, then on the date of such filing), did not, and
each of the registration statements, reports and proxy statements
filed by the Company with the SEC after the date hereof and prior
to the Closing will not, as of the date thereof (or if amended or
superseded by a filing after the date of this Agreement, then on
the date of such filing), contain any untrue statement of a
material fact or omit to state a material fact necessary in order
to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The
Company is not a party to any material contract, agreement or
other arrangement that was required to have been filed as an
exhibit to the SEC Documents that was not so filed.
(2) Financial Statements. The Company has provided
the Investor with copies of its audited financial statements (the
"Audited Financial Statements") for the fiscal year ended
December 31, 1997, and its unaudited financial statements for the
nine-month period ended September 27, 1998 (the "Balance Sheet
Date"). Since the Balance Sheet Date, the Company has duly filed
with the SEC all registration statements, reports and proxy
statements required to be filed by it under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act. The audited and unaudited consolidated financial
statements of the Company included in the SEC Documents filed
prior to the date hereof fairly present, in conformity with
generally accepted accounting principles ("GAAP") (except, in the
case of the Form 10-Q's, as may otherwise be permitted by Form 10-
Q) applied on a consistent basis (except as otherwise may be
stated in the notes thereto), the consolidated financial position
of the Company and its consolidated subsidiaries as at the dates
thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject to normal year-end
audit adjustments in the case of unaudited interim financial
statements).
(j) Absence of Certain Changes Since Balance Sheet Date.
Since the Balance Sheet Date, the business and operations of the
Company have been conducted in the ordinary course consistent
with past practice, and there has not been:
(i) any declaration, setting aside or payment of any
dividend or other distribution of the assets of the Company with
respect to any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company or any
subsidiary of the Company of any outstanding shares of the
Company's capital stock;
(ii) any damage, destruction or loss, whether or not
covered by insurance, except for such occurrences, individually
and collectively, that are not material to the Company;
(iii) any waiver by the Company of a valuable right
or of a material debt owed to it, except for such waivers,
individually and collectively, that are not material;
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CUSIP No. 720035302 Schedule 13D Page 20 of 67 Pages
(iv) any material change or amendment to, or any waiver
of any material right under a material contract or arrangement by
which the Company or any of its assets or properties is bound or
subject, except for changes, amendments or waivers that are
expressly provided for or disclosed in this Agreement;
(v) any change by the Company in its accounting
principles, methods or practices or in the manner it keeps its
accounting books and records, except any such change required by
a change in GAAP; or
(vi) any other event or condition of any character,
except for such events and conditions that have not resulted, and
could not reasonably be expected to result, either individually
or collectively, in a Material Adverse Effect.
(k) Invention Assignment and Confidentiality Agreement.
Each employee and consultant or independent contractor of the
Company whose duties include the development of products or
Intellectual Property (as defined below), and each former
employee and consultant or independent contractor whose duties
included the development of products or Intellectual Property,
has entered into and executed an invention assignment and
confidentiality agreement in customary form or an employment or
consulting agreement containing substantially similar terms.
(l) Intellectual Property.
(i) Ownership or Right to Use. The Company has sole
title to and owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents or patent applications,
software, know-how, registered or unregistered trademarks and
service marks and any applications therefor, registered or
unregistered copyrights, trade names, and any applications
therefor, trade secrets or other confidential or proprietary
information ("Intellectual Property") necessary to enable the
Company to carry on its business as currently conducted, except
where any deficiency, or group of deficiencies, would not have a
Material Adverse Effect.
(ii) Licenses; Other Agreements. The Company is not
currently the licensee of any material portion of the
Intellectual Property of the Company. There are not outstanding
any licenses or agreements of any kind relating to any
Intellectual Property owned by the Company, except for agreements
with customers of the Company entered into in the ordinary course
of the Company's business and other licenses and agreements that,
collectively, are not material. The Company is not obligated to
pay any royalties or other payments to third parties with respect
to the marketing, sale, distribution, manufacture, license or use
of any Intellectual Property, except as the Company may be so
obligated in the ordinary course of its business, as disclosed in
the Company's SEC Documents or where the aggregate amount of such
payments could not reasonably be expected to be material.
(iii) No Infringement. The Company has not
violated or infringed in any material respect, and is not
currently violating or infringing in any material respect, and
the Company has not received any communications alleging that the
Company (or any of its
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 21 of 67 Pages
employees or consultants) has violated or infringed, any
Intellectual Property of any other person or entity.
(iv) Employees and Consultants. To the best of the
Company's knowledge, no employee of or consultant to the Company
is in material default under any term of any material employment
contract, agreement or arrangement relating to Intellectual
Property of the Company or any material non-competition
arrangement, other contract or restrictive covenant relating to
the Intellectual Property of the Company. The Intellectual
Property of the Company (other than any Intellectual Property
duly acquired or licensed from third parties) was developed
entirely by the employees of or consultants to the Company during
the time they were employed or retained by the Company, and to
the best knowledge of the Company, at no time during conception
or reduction to practice of such Intellectual Property of the
Company were any such employees or consultants operating under
any grant from a government entity or agency or subject to any
employment agreement or invention assignment or non-disclosure
agreement or any other obligation with a third party that would
materially and adversely affect the Company's rights in the
Intellectual Property of the Company. Such Intellectual Property
of the Company does not, to the best knowledge of the Company,
include any invention or other intellectual property of such
employees or consultants made prior to the time such employees or
consultants were employed or retained by the Company nor any
intellectual property of any previous employer of such employees
or consultants nor the intellectual property of any other person
or entity.
(v) Year 2000 Compliance.
(a) All of the Company's and its subsidiaries'
material products (including products currently under
development) will record, store, process and calculate and
present calendar dates falling on and after December 31, 1998,
and will calculate any information dependent on or relating to
such dates in the same manner and with the same functionality,
data integrity and performance as the products record, store,
process, calculate and present calendar dates on or before
December 31, 1998, or calculate any information dependent on or
relating to such dates (collectively, "Year 2000 Compliant").
All of the Company's and its subsidiaries' material products will
lose no significant functionality with respect to the
introduction of records containing dates falling on or after
December 31, 1998. All of the Company's and its subsidiaries'
internal computer systems comprised of software, hardware,
databases or embedded control systems (microprocessor controlled,
robotic or other device) related to the Company's and its
subsidiaries' businesses (collectively, a "Business System"),
that constitutes any material part of, or is used in connection
with the use, operation or enjoyment of, any material tangible or
intangible asset or real property of the Company and its
subsidiaries, including its accounting systems, are Year 2000
Compliant. The current versions of the Company's and its
subsidiaries' software and all other Intellectual Property may be
used prior to, during and after December 31, 1998, such that such
software and Intellectual Property will operate prior to, during
and after such time period without error caused by date data that
represents or references different centuries or more than one
century.
(b) To the knowledge of the Company, all of the
Company's products and the conduct of the Company's business with
customers and suppliers will not be materially adversely affected
by the advent of the year 2000, the advent of the twenty-first
century or the
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 22 of 67 Pages
transition from the twentieth century through the year 2000 and
into the twenty-first century. To the knowledge of the Company,
neither the Company nor any of its subsidiaries is reasonably
likely to incur material expenses arising from or relating to the
failure of any of its Business Systems or any products (including
all products sold on or prior to the date hereof) as a result of
the advent of the year 2000, the advent of the twenty-first
century or the transition from the twentieth century through the
year 2000.
(m) Registration Rights. The Company is not currently
subject to any agreement providing any person or entity any
rights (including piggyback registration rights) to have any
securities of the Company registered with the SEC or registered
or qualified with any other governmental authority.
(n) Title to Property and Assets. The properties and
assets of the Company are owned by the Company free and clear of
all mortgages, deeds of trust, liens, charges, encumbrances and
security interests except for statutory liens for the payment of
current taxes that are not yet delinquent and liens, encumbrances
and security interests that arise in the ordinary course of
business and do not in any material respect affect the properties
and assets of the Company. With respect to the property and
assets it leases, the Company is in compliance with such leases
in all material respects.
(o) Tax Matters. The Company has filed all material tax
returns required to be filed, which returns are true and correct
in all material respects, and the Company has paid in full all
taxes that have become due on or prior to the date hereof (and
will have paid when due all taxes that become due after the date
hereof and prior to the Closing), including penalties and
interest, assessments, fees and other charges, other than those
being contested in good faith and/or those for which adequate
reserves have been provided for.
(p) Full Disclosure. The information contained in this
Agreement, the Disclosure Letter and the SEC Documents with
respect to the business, operations, assets, results of
operations and financial condition of the Company, and the
transactions contemplated by this Agreement , are true and
complete in all material respects and do not omit to state any
material fact or facts necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(q) Finder's Fee. The Company neither is nor will be
obligated for any finder's or broker's fee or commission in
connection with this transaction.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE
INVESTOR. The Investor hereby represents and warrants to the
Company, and agrees that:
(a) Organization Good Standing and Qualification. The
Investor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
corporate power and authority required to carry on its business
as presently conducted. The Investor is qualified to do business
and is in good standing in each jurisdiction in which the failure
to so qualify would have a Material Adverse Effect.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 23 of 67 Pages
(b) Authorization. The execution of this Agreement has
been duly authorized by all necessary corporate action on the
part of the Investor. This Agreement constitutes the Investor's
legal, valid and binding obligation, enforceable in accordance
with its terms, except as may be limited by (a) (i) applicable
bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of
creditors' rights generally and (ii) the effect of rules of law
governing the availability of equitable remedies. The Investor
has full corporate power and authority to enter into this
Agreement, except as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles
of public policy thereunder.
(c) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state or local
governmental authority on the part of the Investor is required in
connection with the purchase of the Preferred Shares by the
Investor.
(d) Non-Contravention. The execution, delivery and
performance of this Agreement by the Investor, and the
consummation by the Investor of the transactions contemplated
hereby, do not and will not (i) contravene or conflict with the
Certificate of Incorporation or Bylaws of the Investor; (ii)
constitute a violation of any provision of any federal, state,
local or foreign law binding upon or applicable to the Investor;
or (iii) constitute a default or require any consent under, give
rise to any right of termination, cancellation or acceleration
of, or to a loss of any benefit to which the Investor is entitled
under, or result in the creation or imposition of any lien, claim
or encumbrance on any assets of the Investor under, any contract
to which the Investor is a party or any permit, license or
similar right relating to the Investor or by which the Investor
may be bound or affected.
(e) Litigation. There is no Action pending that seeks to
prevent, enjoin, alter or delay the transactions contemplated by
this Agreement.
(f) Purchase for Own Account. The Purchased Shares are
being acquired for investment for the Investor's own account, not
as a nominee or agent, and not with a view to the public resale
or distribution thereof within the meaning of the Securities Act,
and the Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. The
Investor also represents that it has not been formed for the
specific purpose of acquiring the Purchased Shares.
(g) Investment Experience. The Investor understands that
the purchase of the Purchased Shares involves substantial risk.
The Investor has experience as an investor in securities of
companies and acknowledges that it is able to fend for itself,
can bear the economic risk of its investment in the Purchased
Shares and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and
risks of this investment in the Purchased Shares and protecting
its own interests in connection with this investment.
(h) Accredited Investor Status. The Investor is an
"accredited investor" within the meaning of Regulation D
promulgated under the Securities Act.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 24 of 67 Pages
(i) Restricted Securities. The Investor understands that
the Purchased Shares are characterized as "restricted securities"
under the Securities Act, inasmuch as they are being acquired
from the Company in a transaction not involving a public offering
and that under the Securities Act and applicable regulations
thereunder such securities may be resold without registration
under the Securities Act only in certain limited circumstances.
The Investor is familiar with Rule 144 of the SEC, as presently
in effect, and understands the resale limitations imposed thereby
and by the Securities Act.
(j) Legends. The Investor agrees that the certificates for
the Purchased Shares shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or with any
state securities commission, and may not be transferred or
disposed of by the holder in the absence of a registration
statement which is effective under the Securities Act of
1933 and applicable state laws and rules, or, unless,
immediately prior to the time set for transfer, such
transfer may be effected without violation of the Securities
Act of 1933 and other applicable state laws and rules."
In addition, the Investor agrees that the Company may place stop
transfer orders with its transfer agents with respect to such
certificates. The appropriate portion of the legend and the stop
transfer orders will be removed promptly upon delivery to the
Company of such satisfactory evidence as reasonably may be
required by the Company that such legend or stop orders are not
required to ensure compliance with the Securities Act.
(k) Finder's Fee. Investor neither is nor will be
obligated for any finder's or broker's fee or commission in
connection with this transaction.
5. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of the Investor under Sections l and 2 of this
Agreement are subject to the fulfillment or waiver, on or before
the Closing, of each of the following conditions:
(a) Representations and Warranties True. Each of the
representations and warranties of the Company contained in
Section 3 shall be true and correct in all material respects on
and as of the date of the Disclosure Letter (as defined in
Section 7(a)(ii) below) and on and as of the date of the Closing,
except as set forth in the Disclosure Letter, with the same
effect as though such representations and warranties had been
made as of the Closing.
(b) 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 and shall have
obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
(c) Securities Exemptions. The offer and sale of the
Purchased Shares to the Investor pursuant to this Agreement shall
be exempt from the registration requirements of the Securities
Act and the registration and/or qualification requirements of all
applicable state securities laws.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 25 of 67 Pages
(d) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at
the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Investor,
and the Investor shall have received all such counterpart
originals and certified or other copies of such documents as it
may reasonably request. Such documents shall include but not be
limited to the following:
(i) Certified Charter Documents. A copy of (i) the
Certificate of Incorporation certified as of a recent date by the
Secretary of State of Delaware as a complete and correct copy
thereof, (ii) a copy of the Certificate of Designations certified
as of a recent date by the Secretary of State of Delaware and
(iii) the Bylaws of the Company (as amended through the date of
the Closing) certified by the Secretary of the Company as a true
and correct copy thereof as of the Closing.
(ii) Board Resolutions. A copy, certified by the
Secretary of the Company, of the resolutions of the Board of
Directors of the Company providing for the approval of this
Agreement and the issuance of the Purchased Shares and the shares
of Common Stock issuable upon conversion of the Purchased Shares,
and the other matters contemplated hereby and thereby.
(iii) Registrar and Transfer Agent Certificate. A
certificate, executed by the Company's registrar and transfer
agent certifying the number of outstanding shares of Common Stock
of the Company as of a recent date reasonably acceptable to the
Investor.
(e) Opinion of Company Counsel. The Investor will have
received an opinion on behalf of the Company, dated as of the
date of the Closing, from Ropes & Gray, counsel to the Company,
in the form attached as Exhibit B.
(f) No Material Adverse Effect. Between the date hereof
and the Closing, there shall not have occurred any Material
Adverse Effect to the Company.
(g) Nasdaq Requirements. All requirement of the Nasdaq
National Market in connection with the transactions contemplated
by this Agreement shall have been complied with by the Company.
The shares of Common Stock issuable upon conversion of the
Purchased Shares shall have been approved for quotation on the
Nasdaq National Market.
(h) Investor Satisfaction with Review of Company and
Disclosure Letter. The Investor shall be satisfied, in the
Investor's sole discretion, with its review of the Company as
described in Section 7(a)(i) and the contents of the Disclosure
Letter (as defined in Section 7(a)(ii)); provided, however, that
the Investor's willingness to proceed with the Closing shall not
affect the Company's liability for the breach by the Company of
any of its representations or warranties.
(i) Executive Committee Approval. The Investor shall have
obtained the approval from its Executive Committee (in its sole
discretion) of the purchase of the Purchased Shares and the
consummation of the transactions contemplated by this Agreement.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 26 of 67 Pages
(j) Other Actions. The Company shall have executed such
certificates, agreements, instruments and other documents, and
taken such other actions as shall be customary or reasonably
requested by the Investor in connection with the transactions
contemplated hereby.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the Investor under this Agreement
are subject to the fulfillment or waiver, on or before the
Closing, of each of the following conditions:
(a) Representations and Warranties True. The
representations and warranties of the Investor contained in
Section 4 shall be true and correct in all material respects on
and as of the date hereof and on and as of the date of the
Closing with the same effect as though such representations and
warranties had been made as of the Closing.
(b) Performance. The Investor 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 and shall have
obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
(c) Payment of Purchase Price. The Investor shall have
delivered to the Company the Purchase Price as specified in
Section 1(b).
(d) Securities Exemptions. The offer and sale of the
Purchased Shares to the Investor pursuant to this Agreement shall
be exempt from the registration requirements of the Securities
Act and the registration and/or qualification requirements of all
applicable state securities laws.
(e) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at
the Closing and all documents incident thereto will be reasonably
satisfactory in form and substance to the Company and to the
Company's legal counsel, and the Company will have received all
such counterpart originals and certified or other copies of such
documents as it may reasonably request.
(f) Nasdaq Requirements. All requirement of the Nasdaq
National Market in connection with the transactions contemplated
by this Agreement shall have been complied with.
(g) Other Actions. The Investor shall have executed such
certificates, agreements, instruments and other documents, and
taken such other actions as shall be customary or reasonably
requested by the Company in connection with the transactions
contemplated hereby.
7. COVENANTS OF THE PARTIES.
(a) Review of the Company by the Investor/Disclosure
Letter.
(i) Review of Company. Between the date hereof and
the earlier of the termination of this Agreement in accordance
with its terms or the Closing Date, the Investor's authorized
agents (including its attorneys and accountants), at the
Investor's expense, shall have full authority to commence a
complete review of the Company, its assets, properties, business,
operations, prospects and condition (financial and otherwise),
including records of its counsel
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 27 of 67 Pages
(except to the extent the disclosure of any such information
would likely result in loss of attorney-client privilege with
respect to such information). The Company will cooperate fully
with such examination and will make full and complete disclosure
to the Investor and its representatives of all facts relating to
the Company and its assets, properties, liabilities, business,
operations, prospects and condition (financial or otherwise).
The Company understands that the purchase of the Purchased Shares
by the Investor and the other transactions contemplated by this
Agreement are expressly conditioned upon the Investor's
satisfaction with the results of the examination described in
this Section 7(a)(i). The Investor agrees to use all reasonable
efforts to complete its review of the Company by February 10,
1999.
(ii) Disclosure Letter. On or prior to January 20,
1999, the Company shall deliver to the Investor a draft of a
disclosure letter, which shall set forth exceptions, if any, to
the representations and warranties made by the Company in Article
3 hereof. Such disclosure letter shall be organized such that
any exceptions specifically identify the representation and
warranty, by section, to which they relate, and shall clearly
identify the nature of the exception, to the Investor's
reasonable satisfaction. After delivery of such draft to the
Investor, the Company and the Investor shall cooperate with one
another to revise such draft in a manner that is reasonably
acceptable to both parties. The final form of such disclosure
letter is referred to herein as the "Disclosure Letter." In any
determination of whether the Investor is entitled to
indemnification for the breach of any representations or
warranties set forth in this Agreement, only the Disclosure
Letter (i.e., the final disclosure letter agreed upon by the
Company and the Investor) shall be relevant, and the
identification of any matters on any drafts of the Disclosure
Letter shall not be introduced as evidence or otherwise used in
any manner in connection therewith.
(b) No Third Party Acquisitions. Until the earlier of the
termination of this Agreement in accordance with its terms or the
Closing Date, the Company, its affiliates and their respective
officers and other employees with managerial responsibilities,
directors, representatives and agents shall immediately cease any
discussions or negotiations with any parties with respect to any
Third Party Acquisition (as defined below). Until the earlier of
such dates, subject to any obligation the Board of Directors of
the Company may have to comply with its fiduciary duties under
the laws of the State of Delaware (any such determination to be
made by the Board of Directors, in good faith, upon the advice of
counsel), neither the Company nor any of its affiliates shall,
nor shall the Company authorize or permit any of its or their
respective officers, directors, employees representatives or
agents to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with or
provide any non-public information to any person or group (other
than the Investor) concerning any Third Party Acquisition. For
the purposes of this Agreement, "Third Party Acquisition" means
the occurrence of any of the following events: (i) the
acquisition of the Company by merger or otherwise by any person
(which includes a "person" as such term is defined in Section
13(d)(3) of the Exchange Act) other than the Investor; (ii) the
acquisition by any such person of any material portion of the
assets of the Company and its subsidiaries taken as a whole,
other than the sale of its products in the ordinary course of
business consistent with past practices; (iii) the acquisition by
any such person of fifteen percent (15%) or more of the
outstanding shares of Common Stock of the Company or newly-issued
shares that would result in such person holding fifteen percent
(15%) of the outstanding shares of Common Stock of the Company
after such issuance; (iv) the adoption by the Company of a plan
of liquidation or the declaration or payment of an
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 28 of 67 Pages
extraordinary dividend; (v) the repurchase by the Company or any
of its subsidiaries of more than fifty (50%) of the outstanding
shares of Common Stock of the Company; or (vi) any other
transaction, the substantive effect of which would be
substantially equivalent to any of the foregoing.
(c) Information Rights.
(i) Financial Information. The Company covenants and
agrees that, commencing on the Closing and continuing for so long
as the Investor holds any Purchased Shares, the Company shall:
(A) Annual Reports. Furnish to the Investor
promptly following the filing of such report with the SEC a copy
of the Company's Annual Report on Form 10-K for each fiscal year,
which shall include a consolidated balance sheet as of the end of
such fiscal year, a consolidated statement of income and a
consolidated statement of cash flows of the Company and its
subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal
year, all prepared in accordance with generally accepted
accounting principles and practices and audited by nationally
recognized independent certified public accountants. In the
event the Company shall no longer be required to file Annual
Reports on Form 10-K, the Company shall, within ninety (90) days
following the end of each respective fiscal year, deliver to the
Investor a copy of such balance sheets, statements of income and
statements of cash flows.
(B) Quarterly Reports. Furnish to the Investor
promptly following the filing of such report with the SEC, a copy
of each of the Company's Quarterly Reports on Form 10-Q, which
shall include a consolidated balance sheet as of the end of the
respective fiscal quarter, consolidated statements of income and
consolidated statements of cash flows of the Company and its
subsidiaries for the respective fiscal quarter and for the year
to-date, setting forth in each case in comparative form the
figures from the comparable periods in the Company's immediately
preceding fiscal year, all prepared in accordance with generally
accepted accounting principles and practices (except, in the case
of any Form 10-Q, as may otherwise be permitted by Form 10-Q),
but all of which may be unaudited. In the event the Company
shall no longer be required to file Quarterly Reports on Form 10-
Q, the Company shall, within forty-five (45) days following the
end of each of the first three (3) fiscal quarters of each fiscal
year, deliver to the Investor a copy of such balance sheets,
statements of income and statements of cash flows.
(ii) SEC Filings. The Company shall deliver to the
Investor copies of each other document filed with the SEC on a
non-confidential basis promptly following the filing of such
document with the SEC.
(d) Registration Rights.
(i) Definitions. For purposes of this Section 7(d):
(A) Registration. The terms "register,"
"registered," and "registration" refer to a registration effected
by preparing and filing a registration statement in compliance
with
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 29 of 67 Pages
the Securities Act of 1933, as amended, (the "Securities Act"),
and the declaration or ordering of effectiveness of such
registration statement
(B) Registrable Securities. The term
"Registrable Securities" means: (x) the Purchased Shares and any
shares of Common Stock of the Company issued or issuable upon
conversion of the Purchased Shares; (y) any other shares of
Common Stock of the Company acquired by the Investor from the
Company after the date hereof; and (z) any shares of Common Stock
of the Company or other securities of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or
other security that is issued as) a dividend or other
distribution with respect to, or in exchange for or in
replacement of, any of the securities described in the
immediately preceding Clauses (x) or (y). Notwithstanding the
foregoing, "Registrable Securities" shall exclude any Registrable
Securities sold by a person in a transaction in which rights
under this Section 7(d) are not assigned in accordance with this
Agreement or any Registrable Securities sold in a public
offering, whether sold pursuant to Rule 144 promulgated under the
Securities Act, or in a registered offering, or otherwise.
(C) Registrable Securities Then Outstanding. The
number of shares of "Registrable Securities then outstanding"
shall mean the number of shares of Purchased Shares, shares of
Common Stock and other securities that are Registrable Securities
and are then issued and outstanding.
(D) Holder. For purposes of this Section 7(d),
the term "Holder" means any person owning of record Registrable
Securities that have not been sold to the public or pursuant to
Rule 144 promulgated under the Securities Act or any permitted
assignee of record of such Registrable Securities to whom rights
under this Section 7(d) have been duly assigned in accordance
with this Agreement.
(E) Form S-3. The term "Form S-3" means such
form under the Securities Act as is in effect on the date hereof
or any successor registration form under the Securities Act
subsequently adopted by the SEC that permits inclusion or
incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(ii) Demand Registration.
(A) Request by Holders. If (i) the Company
shall, following the Closing, receive a written request from the
Holders of twenty-five percent (25%) of the Purchased Shares
issued as of the Closing, that the Company file a registration
statement under the Securities Act on Form S-3 or such other form
as such Holders (upon the advice of the underwriters, if any,
engaged by such Holders) may request (including a "shelf"
registration statement, if requested by such Holders, during any
period of time that Rule 144 is not available as an exemption for
the sale in a single 90-day period of all of the Registrable
Securities that any such Holder desires to sell, in which case
the Company would maintain the effectiveness of such "shelf"
registration statement until all such Registrable Securities
could be sold under Rule 144 in a single 90-day period) covering
the registration of Registrable Securities, and (ii) the expected
gross proceeds of the sale of Registrable Securities under such
registration statement would equal or exceed Five Million Dollars
($5,000,000), then the Company shall, within ten (10) business
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CUSIP No. 720035302 Schedule 13D Page 30 of 67 Pages
days of the receipt of such written request, give written notice
of such request ("Request Notice") to all Holders, and use
commercially reasonable efforts to effect, as soon as
practicable, the registration under the Securities Act of all
Registrable Securities that Holders request to be registered and
included in such registration by written notice given such
Holders to the Company within twenty (20) days after receipt of
the Request Notice; provided that the Company shall not be
obligated to effect any such registration if the Company has,
within the six (6) month period preceding the date of such
request, already effected a registration under the Securities Act
pursuant to Section 7(d)(iii), other than a registration from
which the Registrable Securities of Holders have been excluded
with respect to all or any portion of the Registrable Securities
the Holders requested be included in such registration; provided,
however, that the Company shall have no obligation to cause any
registration statement contemplated by this Section 7(d)(ii) to
become effective prior to the one hundred and eightieth (180th)
day after the Closing Date; provided, further, that the Company
shall have no obligation to cause any "shelf" registration
statement contemplated by this Section 7(d)(ii) to become
effective prior to the first anniversary of the Closing Date. If
requested by such Holders, upon the advice of the underwriters,
if any, engaged by such Holders, the Company shall register such
Registrable Securities on Form S-1 or any successor registration
form.
(B) Underwriting. If the Holders initiating the
registration request under this Section 7(d)(ii) ("Initiating
Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, then they shall so
advise the Company as a part of their request, and the Company
shall include such information in the written notice referred to
in Section 7(d)(ii)(A). In such event, the right of any Holder
to include his or her Registrable Securities in such registration
shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed
by a majority in interest of the initiating Holders and such
Holder determined based on the number of Registrable Securities
held by such Holders being registered). All Holders proposing to
distribute their securities through such underwriting shall enter
into an underwriting agreement in customary form with the
managing underwriter or underwriters selected for such
underwriting by the Holders of a majority of the Registrable
Securities being registered and reasonably acceptable to the
Company (including a market stand-off agreement of up to 180 days
if required by such underwriters). Notwithstanding any other
provision of this Section 7(d)(ii), if the underwriter(s)
advise(s) the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten then
the Company shall so advise all Holders of Registrable Securities
that would otherwise be registered and underwritten pursuant
hereto, and the number of Registrable Securities that may be
included in the underwriting shall be reduced as required by the
underwriter(s) and allocated among the Holders of Registrable
Securities on a pro rata basis according to the number of
Registrable Securities then outstanding held by each Holder
requesting registration (including the initiating Holders);
provided, however, that the number of shares of Registrable
Securities to be included in such underwriting and registration
shall not be reduced unless all other securities of the Company
and any selling securityholder other than the Holders are first
entirely excluded from the underwriting and registration. Any
Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
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CUSIP No. 720035302 Schedule 13D Page 31 of 67 Pages
(C) Maximum Number of Demand Registrations. The
Company shall be obligated to effect only three (3) such
registration pursuant to this Section 7(d)(ii).
(D) Deferral. Notwithstanding the foregoing, if
the Company shall furnish to Holders requesting the filing of a
registration statement pursuant to this Section 7(d)(ii) a
certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board,
it would be materially detrimental to the Company and its
stockholders for such registration statement to be filed, then
the Company shall have the right to defer such filing for a
period of not more than ninety (90) days after receipt of the
request of the initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve
(12) month period.
(E) Expenses. All expenses incurred in connection
with any registration pursuant to this Section 7(d)(ii),
including all federal and "blue sky" registration, filing and
qualification fees, printer's and accounting fees, and fees and
disbursements of counsel for the Company (but excluding
underwriters' discounts and commissions relating to shares sold
by the Holders), shall be borne by the Company. Each Holder
participating in a registration pursuant to this Section 7(d)(ii)
shall bear such Holder's proportionate share (based on the total
number of shares sold in such registration other than for the
account of the Company) of all discounts, commissions or other
amounts payable to underwriters or brokers in connection with
such offering by the Holders. Notwithstanding the foregoing, the
Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to this Section 7(d)(ii)
if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable
Securities to be registered, unless the Holders of such majority
agree that such registration constitutes the use by the Holders
of one (1) demand registration pursuant to this Section 7(d)(ii)
(in which case such registration shall also constitute the use by
all Holders of Registrable Securities of one (l) such demand
registration); provided further, however, that if at the time of
such withdrawal, the Holders have learned of a material adverse
change relating to the Company not known to the Holders at the
time of their request for such registration and have withdrawn
their request for registration after learning of such material
adverse change, then the Holders shall not be required to pay any
of such expenses and such registration shall not constitute the
use of a demand registration pursuant to this Section 7(d)(ii).
(iii) Piggyback Registrations. The Company shall
notify all Holders of Registrable Securities in writing at least
thirty (30) days prior to filing any registration statement under
the Securities Act for purposes of effecting a public offering of
securities of the Company (including registration statements
relating to secondary offerings of securities of the Company, but
excluding registration statements relating to any employee
benefit plan or any merger or other corporate reorganization) and
will afford each such Holder an opportunity to include in such
registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the
Registrable Securities held by such Holder shall within twenty
(20) days after receipt of the above-described notice from the
Company, so notify the Company in writing, and in such notice
shall inform the Company of the number of Registrable Securities
such Holder wishes to include in such registration statement. If
a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company,
such Holder shall nevertheless continue to
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 32 of 67 Pages
have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as
may be filed by the Company with respect to offerings of its
securities, all upon the terms and conditions set forth herein.
(A) Underwriting. If a registration statement
under which the Company gives notice under this Section 7(d)(iii)
is for an underwritten offering, then the Company shall so advise
the Holders of Registrable Securities. In such event, the right
of any such Holder's Registrable Securities to be included in
such a registration pursuant shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall
enter into an underwriting agreement in customary form with the
managing underwriter or underwriters selected for such
underwriting (including a market stand-off agreement of up to 180
days if required by such underwriters); provided, however, that
it shall not be considered customary to require any of the
Holders to provide representations and warranties regarding the
Company or indemnification of the underwriters for material
misstatements or omissions in the registration statement or
prospectus for such offering. Notwithstanding any other
provision of this Agreement, if the managing underwriter
determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the
managing underwriter(s) may exclude shares from the registration
and the underwriting; provided, however, that the securities to
be included in the registration and the underwriting shall be
allocated, (1) first to the Company (provided, however, that a
minimum of twenty-five percent (25%) of the number of Registrable
Securities held by each Holder (where any Registrable Securities
that are not shares of Common Stock but are exercisable or
exchangeable for, or convertible into, shares of Common Stock,
shall be deemed to have been so exercised, exchanged or converted
for such purpose) must also in any event be included if requested
by any such Holder), (2) second, to the extent the managing
underwriter determines additional securities can be included
after compliance with Clause (1), to each of the Holders (to the
extent not included pursuant to Clause (1)) requesting inclusion
of their Registrable Securities in such registration statement on
a pro rata basis based on the total number of Registrable
Securities and other securities entitled to registration then
held by each such Holder, and (3) third, to the extent the
managing underwriter determines additional securities can be
included after compliance with Clauses (1) and (2), any other
shares of Common Stock or other securities of the Company. Any
Registrable Securities excluded or withdrawn from such
underwriting shall be excluded and withdrawn from the
registration. For any Holder that is a partnership, the Holder
and the partners and retired partners of such Holder, or the
estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing
persons, and for any Holder that is a corporation, the Holder and
all corporations that are affiliates of such Holder, shall be
deemed to be a single "Holder," and any pro rata reduction with
respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and
individuals included in such "Holder," as defined in this
sentence.
(B) Expenses. All expenses incurred in
connection with a registration pursuant to this Section 7(d)(iii)
(excluding underwriters' and brokers' discounts and commissions
relating to shares sold by the Holders), including all federal
and "blue sky"
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 33 of 67 Pages
registration, filing and qualification fees, printers' and
accounting fees, and fees and disbursements of counsel for the
Company, shall be borne by the Company.
(C) Not Demand Registration. Registration
pursuant to this Section 7(d)(iii) shall not be deemed to be a
demand registration as described in Section 7(d)(ii) above.
Except as otherwise provided herein, there shall be no limit on
the number of times the Holders may request registration of
Registrable Securities under this Section 7(b)(iii).
(iv) Form S-3 Registration. If requested by the
Investor, the Company shall use all reasonable commercial efforts
to cause to be filed and become effective with the SEC a
Registration Statement on Form S-3 relating to all of the
Registrable Securities (in the event such registration statement
is not effective on such date, the Company shall continue to use
all reasonable commercial efforts to cause it to become effective
until it becomes effective), such Registration Statement to be
effected only for sales or other transfers by the Investor in
connection with offerings, sales and transfers not constituting
an underwritten public offering; provided, however, that the
Company shall not be obligated to cause such registration
statement to become effective before the one hundred eighty-first
(181st) day following the Closing Date; provided, further, that
in the event Form S-3 is not available to the Company, the
Company shall file such other form as may be available if Holders
who hold Registrable Securities with a market value of at least
One Million Dollars ($1,000,000) deliver a written request to the
Company that the Company do so, where such market value is
determined as of the date of such written request. The Company
shall use its best efforts to cause any such Registration
Statement to become effective as promptly as possible after such
filing (but shall not be required to cause such Registration
Statement to become effective prior to the one hundred eighty-
first (181st) day following the Closing Date) and shall also use
its best efforts to obtain any related qualifications,
registrations or other compliances that may be necessary under
any applicable "blue sky" laws. In connection with such
registration, the Company will:
(A) Notice. Promptly give written notice to the
Holders of the proposed registration and any related
qualification or compliance; and
(B) Registration. Effect such registration and
all such qualifications and compliances and as would permit or
facilitate the sale and distribution of all or such portion of
such Holders or Holders' Registrable Securities on and after the
one hundred and eightieth (180th) day following the Closing Date;
provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance
pursuant to this Section 7(d)(iv) in any particular jurisdiction
in which the Company would be required to qualify to do business
or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(C) Expenses. The Company shall pay all expenses
incurred in connection with each registration requested pursuant
to this Section 7(d)(iv), excluding underwriters' or brokers'
discounts and commissions relating to shares sold by the Holders,
including federal and "blue sky" registration, filing and
qualification fees, printers' and accounting fees, and fees and
disbursements of counsel.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 34 of 67 Pages
(D) Deferral. Notwithstanding the foregoing, if
the Company shall furnish to Holders requesting the filing of a
registration statement pursuant to this Section 7(d)(iv), a
certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board,
it would be materially detrimental to the Company and its
stockholders for such registration statement to be filed, then
the Company shall have the right to defer such filing for a
period of not more than ninety (90) days after receipt of the
request of the initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve
(12) month period, and the period of time that the Company is
obligated to maintain the effectiveness of any registration
statement under Clause (F) below shall be extended for the length
of any such period of deferral.
(E) Not Demand Registration. Form S-3
registrations shall not be deemed to be demand registrations as
described in Section 7(d)(ii) above.
(F) Maintenance. The Company shall use all
reasonable commercial efforts to maintain the effectiveness of
any Form S-3 registration statement filed under this Section
7(d)(iv) until the earlier of: (a) the date on which all of the
Registrable Securities have been sold; and (b) the first
anniversary of the effective date of such registration statement;
provided, however, that unless all of the Registrable Securities
held by the Investor as of such first anniversary could then be
sold in a single transaction in accordance with Rule 144 under
the Securities Act without exceeding the volume limitations
thereof, if the Company receives written notice from the Investor
that the Investor may be deemed to be an "affiliate" of the
Company for purposes of the Securities Act, the date in this
Clause (b) shall be extended until the Investor advises the
Company that it no longer believes it may be deemed such an
"affiliate."
(v) Obligations of the Company. Whenever required to
effect the registration of any Registrable Securities under this
Agreement the Company shall, as expeditiously as reasonably
possible:
(A) Registration Statement. Prepare and file
with the SEC a registration statement with respect to such
Registrable Securities and use commercially reasonable efforts to
cause such registration statement to become effective; provided,
however, that, except as otherwise required by in this Section
7(d), the Company shall not be required to keep any such
registration statement effective for more than ninety (90) days.
(B) Amendments and Supplements. Prepare and file
with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(C) Prospectuses. Furnish to the Holders such
number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in
order to facilitate the disposition of the Registrable Securities
owned by them that are included in such registration.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 35 of 67 Pages
(D) Blue Sky. Use commercially reasonable
efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in
any such states or jurisdictions.
(E) Underwriting. In the event of any
underwritten public offering, enter into and perform its
obligations under an underwriting agreement in usual and
customary form (including customary indemnification of the
underwriters by the Company), with the managing underwriter(s) of
such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such an
agreement; provided, however, that it shall not be considered
customary to require any of the Holders to provide
representations and warranties regarding the Company or
indemnification of the underwriters for material misstatements or
omissions in the registration statement or prospectus for such
offering.
(F) Notification. Notify each Holder of
Registrable Securities covered by 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
as a result of which the prospectus included 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 the light of the circumstances then existing.
(G) Opinion and Comfort Letter. Furnish, at the
request of any Holder requesting registration of Registrable
Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the
registration statement with respect to such securities becomes
effective, (i) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration,
addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) in the
event that such securities are being sold through underwriters, a
"comfort" letter dated as of such date, from the independent
certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters
and to the Holders requesting registration of Registrable
Securities.
(vi) Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action
pursuant to Sections 7(d)(ii), (iii) or (iv) that the selling
Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the
intended method of disposition of such securities as shall be
required to timely effect the registration of their Registrable
Securities.
(vii) Indemnification. In the event any
Registrable Securities are included in a registration statement
under Sections 7(d)(ii), (iii) or (iv):
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 36 of 67 Pages
(A) By the Company. To the extent permitted by
law, the Company will indemnify and hold harmless each Holder,
the partners, officers, shareholders, employees, representatives
and directors of each Holder, any underwriter (as determined in
the Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as
amended, against any losses, claims, damages, or Liabilities
(joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of
the following statements, omissions or violations (collectively a
"Violation"):
(x) any untrue statement or alleged untrue
statement of a material fact contained in such registration
statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto;
(y) 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, or
(z) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any federal
or state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any federal or
state securities law in connection with the offering covered by
such registration statement;
and the Company will reimburse each such Holder, partner,
officer, shareholder, employee, representative, director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity
agreement contained in this subsection shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation that occurs in reliance upon
and in conformity with written information furnished expressly
for use in connection with such registration by such Holder,
partner, officer, shareholder, employee, representative,
director, underwriter or controlling person of such Holder.
(B) By Selling Holders. To the extent permitted
by law, each selling Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act,
any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's
partners, officers, shareholders, employees, representatives and
directors and any person who controls such Holder within the
meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or several) to
which the Company or any such officer or director, controlling
person, underwriter or other such Holder, partner, officer,
shareholder, employee, representative, director or controlling
person of such other Holder may become subject under the
Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any
Violation, in each case
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 37 of 67 Pages
to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with
such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such
officer or director, controlling person, underwriter or other
Holder, partner, officer, shareholder, employee, representative,
director or controlling person of such other Holder in connection
with investigating or defending any such loss, claim, damage,
liability or action: provided, however, that the indemnity
agreement contained in this subsection shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; and
provided further, that the total amounts payable in indemnity by
a Holder under this subsection or otherwise in respect of any and
all Violations shall not exceed in the aggregate the net proceeds
received by such Holder in the registered offering out of which
such Violations arise.
(C) Notice. Promptly after receipt by an
indemnified party under of notice of the commencement of any
action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against
any indemnifying party under this section, deliver to the
indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have
the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, to the extent that
representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or
potential conflict of interests between such indemnified party
and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement
of any such action shall not relieve such indemnifying party of
liability except to the extent the indemnifying party is
prejudiced as a result thereof.
(D) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company and Holders are
subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or
the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall
not inure to the benefit of any person if a copy of the Final
Prospectus was timely furnished to the indemnified party and was
not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the
Securities Act.
(E) Contribution. 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
exercising rights under this Agreement, or any controlling person
of any such Holder, makes a claim for indemnification pursuant to
this section, 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
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 38 of 67 Pages
such case notwithstanding the fact that this section 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; 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 Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all
securities offered by and sold under such registration statement,
and the Company and other selling Holders are 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 Registrable
Securities offered and sold by such Holder 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.
(F) Survival. The obligations of the Company and
Holders under this Section 7(d)(vii) shall survive until the
fifth anniversary of the completion of any offering of
Registrable Securities in a registration statement, regardless of
the expiration of any statutes of limitation or extensions of
such statutes.
(viii) Termination of the Company's Obligations.
The Company shall have no obligations pursuant to this Section
7(d) with respect to any Registrable Securities proposed to be
sold by a Holder in a registration pursuant to Section 7(d)(ii),
(iii) or (iv) more than four (4) years after the Closing Date.
(ix) No Registration Rights to Third Parties. Without
the prior written consent of the Holders of sixty-six and two-
thirds percent (66 2/3%) of the Series A Preferred Stock then
outstanding, the Company covenants and agrees that it shall not
grant, or cause or permit to be created, for the benefit of any
person or entity any registration rights of any kind (whether
similar to the demand, "piggyback" or Form S-3 registration
rights described in this Section 7, or otherwise) relating to
shares of the Company's Common Stock or any other securities of
the Company that are pari passu or superior to the rights granted
under this Section 7(d).
(x) Suspension Provisions. Notwithstanding the
foregoing subsections of this Section 7(d), the Company shall not
be required to take any action with respect to the registration
or the declaration of effectiveness of the registration statement
following written notice to the Holders from the Company (a
"Suspension Notice") of the existence of any state of facts or
the happening of any event (including pending negotiations
relating to, or the consummation of, a transaction, or the
occurrence of any event that the Company believes, in good faith,
requires additional disclosure of material, non-public
information by the Company in the registration statement that the
Company believes it has a bona fide business purpose for
preserving confidentiality or that renders the Company unable to
comply with the published rules and regulations of the SEC
promulgated under the Securities Act or the Securities Exchange
Act, as in effect at any relevant time (the "Rules and
Regulations")) that would result in (1) the registration
statement, any amendment or post-effective amendment thereto, or
any document
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 39 of 67 Pages
incorporated therein by reference containing an untrue statement
of a material fact or omitting to state a material fact required
to be stated therein or necessary to make the statements therein
not misleading, or (2) the prospectus issued under the
registration statement, any prospectus supplement, or any
document incorporated therein by reference including an untrue
statement of material fact or omitting 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,
provided that the Company (1) shall not issue a Suspension Notice
more than once in any 12 month period, (2) shall use its best
efforts to remedy, as promptly as practicable, but in any event
within ninety (90) days of the date on which the Suspension
Notice was delivered, the circumstances that gave rise to the
Suspension Notice and deliver to the Holders notification that
the Suspension Notice is no longer in effect and (3) shall not
issue a Suspension Notice for any period during which the
Company's executive officers are not similarly restrained from
disposing of shares of the Company's Common Stock. Upon receipt
of a Suspension Notice from the Company, all time limits
applicable to the Holders under this Section 7(d) shall
automatically be extended by an amount of time equal to the
amount of time the Suspension Notice is in effect, the Holders
will forthwith discontinue disposition of all such shares
pursuant to the registration statement until receipt from the
Company of copies of prospectus supplements or amendments
prepared by or on behalf of the Company (which the Company shall
prepare promptly), together with a notification that the
Suspension Notice is no longer in effect, and if so directed by
the Company, the Holders will deliver to the Company all copies
in their possession of the prospectus covering such shares
current at the time of receipt of any Suspension Notice.
(e) Obligations Regarding Confidential Information.
Confidential Information (as defined below) shall not be
disclosed by any party hereto to any third party except in
accordance with the provisions set forth below. For purposes of
this Agreement, the term "Confidential Information" refers to the
following items: (i) the existence of this Agreement , and (ii)
the terms and provisions of this Agreement, provided, however,
that Confidential Information shall not include any information
that was (i) publicly known and generally available in the public
domain prior to its disclosure by the Company, (ii) becomes
publicly known and generally available in the public domain
through no action or inaction on the part of the Company or (iii)
becomes publicly known by written consent or other action of the
Investor.
(i) Press Releases, Etc. No announcement regarding
the Confidential Information in a press release, conference,
advertisement, announcement, professional or trade publication,
mass marketing materials or otherwise may be made without the
prior written consent of each of the parties hereto.
(ii) Permitted Disclosures. Notwithstanding the
foregoing, (i) any party may disclose any of the Confidential
Information to its current or bona fide prospective investors,
employees, investment bankers, lenders, accountants and
attorneys, in each case only where such persons or entities are
under appropriate nondisclosure obligations (the Company shall be
responsible for any failure of any such person to comply with the
provisions of this Section 7(e)); and (ii) the Investor may
disclose its investment in the Company and other Confidential
Information to third parties or to the public at its sole
discretion and, if it does so, the Company shall have the right
to disclose to third parties any such information disclosed in a
press release or other public announcement by the Investor.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 40 of 67 Pages
(iii) Legally Compelled Disclosure. Except to the
extent required by law or judicial or administrative order or
except as provided herein, the Company shall not disclose any
Confidential Information without the Investor's prior written
approval; provided, however, that the Company may disclose any
Confidential Information, to the extent required by law or
judicial or administrative order, provided that if such
disclosure is pursuant to judicial or administrative order, the
Company will notify the Investor promptly before such disclosure
and will cooperate with the Investor to seek confidential
treatment with respect to the disclosure if requested by the
Investor and provided further that if such disclosure is required
pursuant to law or the rules and regulations of any federal,
state or local governmental authority or any regulatory body, the
parties will cooperate to seek confidential treatment to the
maximum extent, in the reasonable judgment of counsel of the
Company, possible under law. Notwithstanding the foregoing
provisions or any other provision to the contrary, the Company
agrees that, except to the extent required by judicial or
administrative order, which the Company shall resist to the
maximum extent possible under law, the Company will not file this
Agreement (the "Exhibit Filing") with any governmental authority
or any regulatory body; provided, however, that to the extent
required under the Rules and Regulations, upon the advice of
counsel, the Company may (A) file this Agreement as an exhibit to
any filing required to be made by the Company under the Exchange
Act, (B) identify the Investor as "Intel Corporation" and (C)
describe the material terms of the Investor's investment. The
Company agrees that it will provide the Investor with drafts of
any documents, press releases or other filings (including the
filing permitted by the proviso of the immediately preceding
sentence) in which the Company desires to disclose this
Agreement, the transactions contemplated hereby or any other
Confidential Information is disclosed at least three (3) business
days prior to the filing or disclosure thereof, and that it will
make any changes to such materials as requested by the Investor
unless advised by counsel that the Rules and Regulations require
otherwise. Unless permitted by the terms of this Section, the
Company will not disclose any Confidential Information or file
this Agreement if the Investor has objected to such disclosure or
filing. The Company will not, except as permitted above, file
this Agreement with any governmental authority or any regulatory
body, or disclose the identity of the Investor or any other
Confidential Information in any filing.
(iv) Joint Press Release. Prior to the execution of
this Agreement, the parties will agree on the content of a joint
press release announcing the existence of this Agreement, which
press release will be issued promptly following the execution of
this Agreement at a time mutually agreed upon by the parties.
(v) Confidential Information of Third Parties.
Neither party will be required to disclose to the other any
confidential information of any third party without having first
obtained such third party's prior written consent; provided,
however, that in connection with the Investor's review of the
Company contemplated by Section 7(a), the Company shall identify
to the Investor, to the extent permitted by any confidentiality
obligation the Company may be subject to, the general nature of
any confidential information that the Company is prohibited from
disclosing to the Investor including, if not prohibited by any
confidentiality obligation the Company may be subject to, the
name of the third party. In any event, the Company shall advise
the Investor of the fact that it has not communicated to the
Investor confidential information of any third party if the
Investor has requested information of the nature not disclosed or
the failure
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 41 of 67 Pages
to disclose such information in the Disclosure Letter would
constitute a breach of any representation or warranty in this
Agreement.
(vi) Other Information. The provisions of this Section
7(e) shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by
any of the parties hereto with respect to the transactions
contemplated hereby. Additional disclosures and exchange of
confidential information between the Company and the Investor
(including any exchanges of information with any the Investor
board observer) shall be governed by the terms of the Corporate
Non-Disclosure Agreement No. 2722411, dated October 7, 1998,
executed by the Company and the Investor, and any Confidential
Information Transmittal Records provided in connection therewith.
(f) Board and Committee Observer.
(1) So long as the Investor, together with its
subsidiaries of which the Investor beneficially owns, either
directly or indirectly, at least fifty percent (50%) of the
voting securities and a majority of the Board of Directors or
other equivalent governing body (each a "Majority Owned
Subsidiary" and collectively, the "Majority Owned Subsidiaries"),
hold the equivalent of at least fifty percent of the Purchased
Shares (where any shares of Common Stock held by the Investor or
such Majority Owned Subsidiaries as the result of the conversion
of any Purchased Shares shall be treated as if they had not been
converted for these purposes), such number to be proportionately
adjusted for stock splits, stock dividends and similar events,
the Company will permit a representative of the Investor,
reasonably acceptable to the Company (the "Representative"), to
attend all meetings of the Company's Board of Directors (the
"Board") and all committees of the Board, whether in person,
telephonic or other, in a non-voting, observer capacity and shall
provide to the Investor, concurrently with the members of the
Board or such Board committee, notice of such meeting and a copy
of all materials provided to such members. A majority of the
disinterested members of the Board shall be entitled to recuse
the Representative from portions of any Board or Board committee
meeting and to redact portions of Board or Board committee
materials delivered to the Representative where and to the extent
that such majority determines by resolution, in good faith, that:
(a) such recusal is reasonably necessary, in the opinion of
counsel to the Company, to preserve attorney-client privilege
with respect to a material matter; or (b) the presence of the
Representative would result in a material conflict of interest
such that such presence is reasonably likely to materially
inhibit deliberations by the Board.
(2) Exchanges of confidential and proprietary
information between the Company and the Investor Representative
shall be governed by the terms of the Corporate Non-Disclosure
Agreement No. 2722411, dated October 7, 1998, executed by the
Company and the Investor, and any Confidential Information
Transmittal Records provided in connection therewith. The
Company acknowledges that the Representative may, from time to
time, have information that may be of interest to the Company
("Information") regarding a wide variety of matters including, by
way of example only, (a) the Investor's technologies, plans and
services, and plans and strategies relating thereto, (b) current
and future investments the Investor has made, may make, may
consider or may become aware of with respect to other companies
and other technologies, products and services, including, without
limitation, companies, technologies, <PAGE>
CUSIP No. 720035302 Schedule 13D Page 42 of 67 Pages
products and services that may be competitive with the Company's,
and (c) developments with respect to the technologies, products
and services, and plans and strategies relating thereto, of other
companies, including companies that may be competitive with the
Company. The Company recognizes that a portion of such
Information may be of interest to the Company. Such Information
may or may not be known by the Representative. The Company, as a
material part of the consideration for this Agreement, agrees
that the Investor and its Representative shall have no duty to
disclose any Information to the Company or permit the Company to
participate in any projects or investments based on any
Information, or to otherwise take advantage of any opportunity
that may be of interest to the Company if it were aware of such
Information, and hereby waives, to the extent permitted by law,
any claim based on the corporate opportunity doctrine or
otherwise that could limit the Investor's ability to pursue
opportunities based on such Information or that would require the
Investor or Representative to disclose any such Information to
the Company or offer any opportunity relating thereto to the
Company.
(g) Rights of Participation.
(i) General. As used in this Agreement, the "Initial
Rights Period" means the period from the date hereof until the
earlier of: (1) such time as the Investor, together with its
Majority Owned Subsidiaries, no longer hold the equivalent of at
least fifty percent (50%) of the Purchased Shares (where any
shares of Common Stock held by the Investor or such Majority
Owned Subsidiaries as a result of conversion of the Purchased
Shares shall be treated as if they had not been converted for
these purposes), such number to be proportionately adjusted for
stock splits, stock dividends and similar events, or (2) April
18, 2000. During the Initial Rights Period, the Investor and
each other person or entity to whom rights under this Section
7(g) have been duly assigned (each of the Investor and each such
assignee, a "Participation Rights Holder") shall have a right of
first refusal to purchase such Participation Rights Holder's Pro
Rata Share (as defined below) of all New Securities (as defined
below) that the Company may from time to time issue during such
period (such New Securities would be allocated among the
Participation Rights Holders who elect to exercise their right to
purchase such New Securities on a pro rata basis according to the
number of Purchased Shares held by each such Participation Rights
Holder (where any shares of Common Stock held as a result of
conversion of Purchased Shares shall be deemed for these purposes
to still be Purchased Shares)). The rights described in the
preceding sentence, as further described in this Clause (g), are
referred to as the "Right of Participation". Notwithstanding the
foregoing, a Participation Rights Holder shall not have the Right
of Participation with respect to any issuance of New Securities
that would result in less than a ten percent (10%) reduction in
such Participation Rights Holder's Pro Rata Share (where prior
issuances of New Securities in which the such Participation
Rights Holder was not entitled to participate are aggregated with
the issuance in question for purposes of such ten percent (10%)
calculation).
(ii) Pro Rata Share. "Pro Rata Share" means, with
respect to each Participation Rights Holder, the ratio of the
following numbers calculated immediately prior to the issuance of
the New Securities giving rise to the Right of Participation:
(A) the Participant Share Number (as defined below) for such
Participation Rights Holder, to (B) the difference between (1)
the sum of (a) the total number of shares of Common Stock, Series
A Preferred Stock and other voting capital stock of the Company
then outstanding, plus (b) the number of
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 43 of 67 Pages
shares of voting capital stock issuable upon the exercise,
conversion or exchange of any other security of the Company then
outstanding and (2) the number of Dilutive Securities issued
since the last Notice Date excluding any Maintenance Securities
issued pursuant to the last Maintenance Notice.
(iii) New Securities. "New Securities" means any
Common Stock, Preferred Stock or other voting capital stock or
security of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or
Preferred Stock or other voting capital stock or security, and
securities of any type whatsoever that are, or may become,
convertible into or exchangeable or exercisable for Common Stock,
Preferred Stock or other voting capital stock or security;
provided, however, that the term "New Securities" shall not
include:
(A) any shares of Common Stock (or options or
warrants therefor) issued to employees, officers, directors or
consultants of the Company pursuant to any stock purchase, stock
option, stock incentive and other employee benefit plans, and
agreements having similar purpose and effect, approved by the
Board;
(B) the Purchased Shares issued under this
Agreement;
(C) shares of Common Stock issued upon conversion
of any Purchased Shares;
(D) any securities issued in connection with any
stock split stock, dividend or other similar event in which all
Participation Rights Holders are entitled to participate on a pro
rata basis;
(E) any securities issued upon the exercise,
conversion or exchange of any outstanding security if such
outstanding security constituted a New Security; or
(F) any securities issued pursuant to the
acquisition of another Person, or subsidiary or division thereof,
by the Company by consolidation, merger, purchase of assets, or
other reorganization.
(iv) Participant Share Number. "Participant Share
Number", with respect to a Participant Rights Holder, means the
sum of (1) the number of Purchased Shares held by such
Participant, (2) the number of shares of Common Stock converted
from Series A Preferred Stock held by such Participant, (3) the
number of shares of other voting capital stock or security of the
Company held by such Participant, and (4) the number of shares of
Series A Preferred Stock, Common Stock or other voting capital
stock or security issuable upon the exercise, conversion or
exchange of any other security of the Company held by such
Participant.
(v) Purchase Price. The purchase price paid by the
Participant Rights Holder for the New Securities shall equal the
lower of (1) the sales price of the New Securities, and (2) the
average Market Price (as defined below) of such New Securities
over the ten (10) trading days immediately preceding the date on
which the Participation Rights Holder elects to purchase such New
Securities.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 44 of 67 Pages
(vi) Alternative Purchase Price. At the Company's
election, if, in written opinion of the Company's independent
auditors, made available to each Participation Rights Holder upon
request, the effect of determining the purchase price after such
issuance pursuant to Clause (v) above would require the Company
to take a charge against earnings in accordance with GAAP, then
for purposes of this Section 7(g), the purchase price shall mean
the Market Price on the date the Participation Rights Holder
elects to purchase New Securities.
(vii) Procedures. If the Company proposes to
undertake an issuance of New Securities (in a single transaction
or a series of related transactions) in circumstances that
entitled a Participation Rights Holder to participate therein in
accordance this Clause (g), the Company shall give to each
Participation Rights Holder written notice of its intention to
issue New Securities (the "Participation Notice"), describing the
amount and the type of New Securities and the price and the
general terms upon which the Company proposes to issue such New
Securities. Each Participation Rights Holder shall have fifteen
(15) business days from the date of receipt of any such
Participation Notice to agree in writing to purchase up to the
maximum number of such New Securities that such Participation
Rights Holder is entitled to purchase for the purchase price
specified in Clause (v) above and upon the terms and conditions
specified in the Participation Notice by giving written notice to
the Company and stating therein the quantity of New Securities to
be purchased (not to exceed such maximum). If any Participation
Rights Holder fails to so agree in writing within such 15
business day period, then such Participation Rights Holder shall
forfeit the right hereunder to participate in such sale of New
Securities; provided, however, that until the expiration of the
Initial Rights Period, any Participation Rights Holders that have
elected to exercise their Right of Participation shall be
entitled to exercise such right with respect to any New
Securities where such right has been forfeited by such other
Participation Rights Holder(s), and the Company shall follow
repeat the procedures set forth in this Clause (g)(v) to
ascertain whether the electing Participation Rights Holders
desire to purchase such other New Securities. All sales
hereunder shall be consummated concurrently with the closing of
the transaction triggering the Right of Participation.
(ix) Failure to Exercise. Upon the expiration of such
fifteen (15) business day period, the Company shall have one
hundred twenty (120) days thereafter, subject to extensions for
regulatory compliance, to sell the New Securities described in
the Participation Notice (with respect to which the Participation
Rights Holders' rights of first refusal hereunder were not
exercised), or enter into an agreement to do so within sixty (60)
days thereafter (which agreement must be consummated within one
hundred twenty (120) days after its execution, subject to
extensions for regulatory compliance), at the price (or a higher
price) and upon non-price terms not materially more favorable to
the purchasers thereof than specified in the Participation
Notice. If the Company has not issued and sold such New
Securities within such 120-day period, or entered into an
agreement to do so within sixty (60) days thereafter (and
consummated such agreement within such 120-day period), then the
Company shall not thereafter issue or sell any New Securities
without again first offering such New Securities to the
Participation Rights Holders pursuant to this Section 7(g).
(h) Right of Maintenance.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 45 of 67 Pages
(i) General. Each Participation Rights Holder shall,
pursuant to the terms and conditions of this Section 7(h), have
the right to purchase from the Company Dilutive Securities (as
defined below) ("Maintenance Securities"), as a result of
issuances by the Company of Dilutive Securities that from time to
time are issued after the Closing Date and before the expiration
of the Initial Rights Period, solely in order to maintain such
Participation Rights Holder's Prior Percentage Interest (as
defined below) in the Company (the "Right of Maintenance"). Each
right to purchase Maintenance Securities pursuant to this Section
7(h) shall be on the same terms (other than price to the extent
provided otherwise below) as the issuance of the Dilutive
Securities that gave rise to the right to purchase such
Maintenance Securities.
(ii) Dilutive Securities. "Dilutive Securities" means
any Common Stock, Preferred Stock or other voting capital stock
or security (including, without limitation, any Common Stock,
voting Preferred Stock or other voting capital stock or security
issued upon the exercise, conversion or exchange of any other
securities) of the Company, whether now authorized or not;
provided, however, that the term "Dilutive Securities" shall not
include:
(A) the Purchased Shares issued under this
Agreement;
(B) shares of Common Stock issued upon conversion
of any Purchased Shares;
(C) any securities issued in connection with any
stock split, stock dividend or similar event in which all
Participation Rights Holders are entitled to participate on a pro
rata basis;
(D) any securities for which the issuance gave
rise to a Right of Participation (regardless of whether any such
right was exercised) or to a Corporate Event;
(E) any securities issuable upon the exercise,
conversion or exchange of any securities described in (C) or (D)
above; or
(F) shares of Common Stock issued as awards,
including pursuant to exercise of options granted, to employees,
officers and directors under any plans approved by the Board.
(iii) Purchase Price. The per share "Purchase
Price" of the Maintenance Securities shall equal the lower of (1)
the sales price of the Dilutive Securities, (2) the price agreed
to in good faith between by the Board of Directors and the
Participation Rights Holder and (3) the average Market Price (as
defined below) of such Maintenance Securities over the ten (10)
trading days immediately preceding the date on which the
Participation Rights Holder elects to purchase such Maintenance
Securities. If the issuance of any Dilutive Securities occurs
upon the exercise, conversion or exchange of other securities
("Exchangeable Securities"), then the per share price at which
such Dilutive Securities shall be deemed to have been issued
shall be the sum of (x) the per share amount paid upon such
exercise, conversion or exchange, plus (y) the per share amount
previously paid for the Exchangeable Securities (adjusted for any
stock splits, stock dividends or other similar events). For
purposes of this Section 7(h)(iii), "Market Price"
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 46 of 67 Pages
means, as to any Maintenance Securities on a given day, the
average of the closing prices of such security's sales on the
principal domestic securities exchanges on which such security
may at the time be listed, or, if there have been no sales on any
such exchange on such day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such day,
or, if on any day such security is not so listed, the average of
the representative bid and asked closing prices quoted on the
Nasdaq National Market on such day, or, if on any day such
security is not quoted on the Nasdaq National Market, the average
of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor
organization. If at any time the Maintenance Securities are not
listed on any domestic securities exchange or quoted on the
Nasdaq National Market or the domestic over-the-counter market
("Unlisted Securities"), the "Market Price" shall be the fair
value thereof determined jointly by the Company and the Holder.
(iv) Alternative Purchase Price. At the Company's
election, if a Participation Rights Holder does not elect to
purchase its Maintenance Amount at the time of issuance of any
Dilutive Securities specified in a Maintenance Note, and in the
written opinion of the Company's independent auditors, made
available to each Participation Rights Holder upon request, the
effect of determining the Purchase Price after such issuance
pursuant to Clause (iii) above would require the Company to take
a charge against earnings in accordance with GAAP, then for
purposes of this Section 7(h), "Purchase Price" shall mean the
Market Price on the date the Participation Rights Holder elects
to purchase its Maintenance Amount.
(v) Consideration Other than Cash. If Dilutive
Securities or Exchangeable Securities were issued for
consideration other than cash, the per share amounts paid for
such Dilutive Securities or Exchangeable Securities shall be
determined jointly in good faith by the Company and the
Participation Rights Holder.
(vi) Appraiser. If the Company and the Participation
Rights Holder are unable to reach agreement within a reasonable
period of time with respect to (1) the Market Price of Unlisted
Securities or (2) the per share amounts paid for Dilutive
Securities or Exchangeable Securities issued for consideration
other than cash, such Market Price or per share amounts paid, as
the case may be, shall be determined by an appraiser jointly
selected by the Company and the Participation Rights Holder. The
determination of such appraiser shall be final and binding on the
Company and the Participation Rights Holder. The fees and
expenses of such appraiser shall be borne jointly by the Company
and such Participation Rights Holder.
(vii) Prior Percentage Interest. A Participation
Rights Holder's "Prior Percentage Interest" for purposes of the
Right of Maintenance is the ratio of (A) the Participant Share
Number for such Participation Rights Holder as of the date of
such Maintenance Notice (the "Notice Date"), to (B) the
difference between (1) the sum of (a) the total number of shares
of Common Stock, Series A Preferred Stock and other voting
capital stock and securities of the Company outstanding on the
Notice Date, plus, (b) the number of shares of voting capital
stock or securities issuable upon the exercise, conversion or
exchange of any other security of the Company outstanding as of
such date (assuming, for purposes of Clauses (a) and (b), the
Common Stock or other securities described in such Maintenance
Notice are deemed not issued), and (2) the total number of
Dilutive Securities issued since the later of the Closing Date
and the
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 47 of 67 Pages
last Notice Date (but excluding any Maintenance Securities issued
pursuant to the last Maintenance Notice).
(viii) Maintenance Amount. A Participation Rights
Holder's "Maintenance Amount" with respect to any Maintenance
Notice shall equal such number of Maintenance Securities as shall
(upon purchase thereof in full by the Participation Rights
Holder) enable such Participation Rights Holder to maintain its
Prior Percentage Interest on a fully-diluted basis. As an
example, assume that the Company had 10,000 shares outstanding
and the Participation Rights Holder holds 20% of such shares (or
2,000 shares). The Company first issues 400 shares to a third
party ("Issuance 1"), an amount insufficient to trigger a Notice
of Issuance pursuant to Section 7(h)(ix). The Company then
proposes to issue 4,600 shares to a third party ("Issuance 2"),
an amount that triggers a Maintenance Notice. The Participation
Rights Holder shall have the right to maintain its 20% interest
after considering Issuances 1 and 2 and the new shares issued to
the Participation Rights Holder. In this example, the
Participation Rights Holder shall have the right to purchase an
additional 1,250 shares, thereby resulting in the Participation
Rights Holder holding 20% of the securities outstanding (3,250
shares out of 16,250 shares).
(ix) Maintenance Notice. At least fifteen (15)
business days before each issuance of Dilutive Securities that
when cumulated with all prior issuances of Dilutive Securities
since the later of (i) the Closing Date and (ii) the date of the
last Notice Date (which, as a result of which, the Participation
Rights Holder had an opportunity to purchase Maintenance
Securities), would result in a ten percent (10%) or greater
reduction in a Participation Rights Holders' Prior Percentage
Interest, the Company shall give to each Participation Rights
Holder written notice (the "Maintenance Notice") describing the
number of Dilutive Securities issued since such prior Notice Date
and the price and non-price terms upon which the Company issued
such Dilutive Securities, and the Maintenance Amount that such
Participation Rights Holder is entitled to purchase as a result
of such issuances.
(x) Purchase of Maintenance Securities. If a
Participation Rights Holder exercises its right to purchase
Dilutive Securities, such Participation Rights Holder shall have
thirty (30) days after the issuance of the Dilutive Securities
specified in the applicable Maintenance Notice to purchase its
Maintenance Amount at the Purchase Price (as determined in
accordance with this Section 7(h)) and upon the other terms and
conditions specified in the Maintenance Notice. The closing of
such purchase shall occur within ten (10) days after such
election to purchase. If any Participation Rights Holder fails
to elect to purchase such Participation Rights Holder's full
Maintenance Amount of Maintenance Securities within such 30-day
period, then such Participation Rights Holder shall forfeit the
right hereunder to purchase that part of its Maintenance Amount
that it did not so elect to purchase.
(xi) Termination. The Company's obligations under this
Section 7(h) shall terminate upon the expiration of the Initial
Rights Period.
(i) Rights in the Event of a Corporate Event.
(1) Corporate Events. A "Corporate Event" shall mean
any of the following, whether accomplished through one or a
series of related transactions: (A) any transaction, other
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CUSIP No. 720035302 Schedule 13D Page 48 of 67 Pages
than an issuance of securities in connection with the acquisition
of an unaffiliated third party in an arms length transaction,
that results in a greater than twenty percent (20%) change in the
total outstanding number of voting securities (which, for
purposes of this Agreement, shall mean all securities of the
Company that presently are, or would be upon conversion, exchange
or exercise, entitled to vote in the election of directors) of
the Company immediately prior to such issuance (other than any
such change solely as a result of a stock split, stock dividend
or other recapitalization affecting holders of Common Stock and
other classes of voting securities of the Company on a pro rata
basis); (B) an acquisition of the Company or any of its
"Significant Subsidiaries" (as defined in the SEC's Rule 1-02(w)
of Regulation S-X) by consolidation, merger (regardless of
whether the Company is the survivor of such merger or not), share
purchase or exchange or other reorganization or transaction in
which the holders of the Company's or such Significant
Subsidiary's outstanding voting securities immediately prior to
such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) of the
voting power of the Company, any such Significant Subsidiary or
the Person issuing such securities or surviving such transaction,
as the case may be; (C) the acquisition of all or substantially
all the assets of the Company or any Significant Subsidiary; (D)
the grant by the Company or any of its Significant Subsidiaries
of an exclusive license for any material portion of the Company's
or such Significant Subsidiary's Intellectual Property to a
Person other than the Investor or any of its subsidiaries; and
(E) any transaction or series of related transactions that
results in the failure of the majority of the members of the
Board immediately prior to the closing of such transaction or
series of related transactions failing to constitute a majority
of the Board (or its successor) immediately following such
transaction or series of related transactions.
(2) Notice of Corporate Events. Until expiration of
the Initial Rights Period, the Company shall provide the Investor
with detailed written notice of terms of any offer (written or
oral) from any Person for a proposed Corporate Event. Any notice
shall be delivered to the Investor as soon as practicable but no
later than two (2) business days after the date the Company first
becomes aware of such offer or proposed Corporate Event. Without
limiting the generality of the foregoing, such notice shall set
forth the identity(ies) of the Person(s) involved, the
consideration to be paid and all other material terms and
conditions. If such offer is in writing (whether in the form of
a letter of intent, term sheet or otherwise), the Company shall
deliver a copy thereof to the Investor.
(3) Right of Notification and Negotiation. During the
Initial Rights Period, the Company shall, prior to the Board's
approving or disapproving a Corporate Event or the Company's or
any of its subsidiaries' entering into a definitive agreement
with respect to a Corporate Event, notify the Investor of all
material terms and conditions of such Corporate Event and then
attempt to negotiate in good faith with the Investor for a period
of not less than ten (10) business days for the Investor to
acquire the Company (or Significant Subsidiary, assets or
license, as the case may be) or enter into another Corporate
Event with the Company. During such ten (10) business day
period, the Investor shall be entitled to conduct due diligence
with the reasonable cooperation of the Company. During such ten
(10) business day period, any alternative proposal made by the
Investor shall be submitted by the Company to the Board and the
Board shall, in good faith, either approve or disapprove by
resolution the Investor's alternative proposal. To the extent
that the Company and the Investor do not enter into an agreement
with respect to such an acquisition or other Corporate Event with
the Investor during
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CUSIP No. 720035302 Schedule 13D Page 49 of 67 Pages
such ten (10) business day period, the Board shall be free to
approve or disapprove such Corporate Event, and the Company shall
be free to enter into a definitive agreement with respect to a
Corporate Event with a third party and subsequently consummate
such Corporate Event; provided, however, that such definitive
agreement is entered into within thirty (30) days (subject to
extensions for regulatory compliance) following termination of
such ten (10) business day period; provided further, that if
during such ten (10) business day period, the Investor shall have
made a written offer for the acquisition of the Company, the
Corporate Event with such a third party shall be for at least at
the price offered by the Investor and on other terms no less
favorable to shareholders of the Company than the terms of the
offer proposed by the Investor with respect to shareholders other
than the Investor.
(4) Notice of Ten Percent Acquisitions. Until
expiration of the Initial Rights Period, the Company shall
provide the Investor with detailed written notice of the earlier
of the following events: (a) the Company's first becoming aware
of any Person acquiring outstanding voting securities of the
Company such that following such acquisition such Person owns ten
percent (10%) or more of the Company's outstanding voting
securities, or (b) the terms of any offer or proposal (written or
oral) from any Person such that following the consummation of any
such offer or proposal such Person would own ten percent (10%) or
more of the Company's outstanding voting securities. Any notice
shall be delivered to the Investor within two (2) business days
after the date the Company first becomes aware of such
acquisition, offer or proposal. Such notice shall set forth, to
the extent known by Company, the identity(ies) of the Person(s)
involved, the consideration paid or to be paid and all other
material terms and conditions. If such offer or proposal is in
writing (whether in the form of a letter of intent, term sheet or
otherwise), the Company shall deliver a copy thereof to the
Investor.
(j) Nasdaq National Market. The Company shall use its best
efforts to cause the shares of Common Stock issuable upon
exercise of the Purchased Shares to be approved for quotation on
the Nasdaq National Market as promptly as practicable after the
date hereof.
8. INDEMNIFICATION.
(a) Agreement to Indemnify.
(i) Company Indemnity. The Investor, its Affiliates
and Associates, and each officer, director, shareholder,
employer, representative and agent of any of the foregoing
(collectively, the "Investor Indemnitees") shall each be
indemnified and held harmless to the extent set forth in this
Section 8 by the Company with respect to any and all Damages (as
defined below) incurred by any Investor Indemnitee as a proximate
result of any inaccuracy or misrepresentation in, or breach of,
any representation, warranty, covenant or agreement made by the
Company in this Agreement (including any exhibits and schedules
hereto). Indemnification claims arising from the registration of
Purchased Shares under Federal and state securities laws are
covered by Section 7(b) and not this Section 8.
(ii) Investor Indemnity. The Company, its respective
Affiliates and Associates, and each officer, director,
shareholder, employer, representative and agent of any of the
foregoing (collectively, the "Company Indemnitees") shall each be
indemnified and held
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CUSIP No. 720035302 Schedule 13D Page 50 of 67 Pages
harmless to the extent set forth in this Section 8, by the
Investor, in respect of any and all Damages incurred by any
Company Indemnitee as a proximate result of any inaccuracy or
misrepresentation in, or breach of, any representation, warranty,
covenant or agreement made by the Investor in this Agreement.
Indemnification claims arising from the registration of Purchased
Shares under Federal and state securities laws are covered by
Section 7(b) and not this Section 8.
(iii) Equitable Relief. Nothing set forth in this
Section 8 shall be deemed to prohibit or limit any Investor
Indemnitee's or Company Indemnitee's right at any time before, on
or after the Closing, to seek injunctive or other equitable
relief for the failure of any Indemnifying Party to perform or
comply with any covenant or agreement contained herein.
(b) Survival. All representations and warranties of the
Investor and the Company contained herein and all claims of any
Investor Indemnitee or Company Indemnitee in respect of any
inaccuracy or misrepresentation in or breach hereof, shall
survive the Closing until the third anniversary of the date of
this Agreement, regardless of whether the applicable statute of
limitations, including extensions thereof, may expire. All
covenants and agreements of the Investor and the Company
contained in this Agreement shall survive the Closing in
perpetuity (except to the extent any such covenant or agreement
shall expire by its terms). All claims of any Investor
Indemnitee or Company Indemnitee in respect of any breach of such
covenants or agreements shall survive the Closing until the
expiration of two years following the non-breaching party's
obtaining actual knowledge of such breach.
(c) Claims for Indemnification. If any Investor Indemnitee
or Company Indemnitee (an "Indemnitee") shall believe that such
Indemnitee is entitled to indemnification pursuant to this
Section 8 in respect of any Damages, such Indemnitee shall give
the appropriate Indemnifying Party (which for purposes hereof, in
the case of an Investor Indemnitee, means the Company, and in the
case of a Company Indemnitee, means the Investor) prompt written
notice thereof. Any such notice shall set forth in reasonable
detail and to the extent then known the basis for such claim for
indemnification. The failure of such Indemnitee to give notice
of any claim for indemnification promptly shall not adversely
affect such Indemnitee's right to indemnity hereunder except to
the extent that such failure adversely affects the right of the
Indemnifying Party to assert any reasonable defense to such
claim. Each such claim for indemnity shall expressly state that
the Indemnifying Party shall have only the twenty (20) business
day period referred to in the next sentence to dispute or deny
such claim. The Indemnifying Party shall have twenty (20)
business days following its receipt of such notice either (a) to
acquiesce in such claim by giving such Indemnitee written notice
of such acquiescence or (b) to object to the claim by giving such
Indemnitee written notice of the objection. If the Indemnifying
Party does not object thereto within such twenty (20) business
day period, such Indemnitee shall be entitled to be indemnified
for all Damages reasonably and proximately incurred by such
Indemnitee in respect of such claim. If the Indemnifying Party
objects to such claim in a timely manner, the senior management
of the Company and the Investor shall meet to attempt to resolve
such dispute. If the dispute cannot be resolved by the senior
management, either party may make a written demand for formal
dispute resolution and specify therein the scope of the dispute.
Within thirty (30) days after such written notification, the
parties agree to meet for one (1) day with an impartial mediator
and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is
not
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CUSIP No. 720035302 Schedule 13D Page 51 of 67 Pages
agreed upon within thirty days after the one day mediation,
either party may begin litigation proceedings. Nothing in this
section shall be deemed to require arbitration.
(d) Defense of Claims. In connection with any claim that
may give rise to indemnity under this Section 8 resulting from or
arising out of any claim or Proceeding against an Indemnitee by a
person or entity that is not a party hereto, the Indemnifying
Party may (unless such Indemnitee elects not to seek indemnity
hereunder for such claim) but shall not be obligated to, upon
written notice to the relevant Indemnitee, assume the defense of
any such claim or Proceeding if the Indemnifying Party with
respect to such claim or Proceeding acknowledges to the
Indemnitee the Indemnitee's right to indemnity pursuant hereto to
the extent provided herein (as such claim may have been modified
through written agreement of the parties) and provides
assurances, reasonably satisfactory to such Indemnitee, that the
Indemnifying Party will be financially able to satisfy such claim
to the extent provided herein if such claim or Proceeding is
decided adversely; provided, however, that nothing set forth
herein shall be deemed to require the Indemnifying Party to waive
any crossclaims or counterclaims the Indemnifying Party may have
against the Indemnified Party for damages. The Indemnified Party
shall be entitled to retain separate counsel, reasonably
acceptable to the Indemnifying Party, if the Indemnified Party
shall determine, upon the written advice of counsel, that an
actual or potential conflict of interest exists between the
Indemnifying Party and the Indemnified Party in connection with
such Proceeding. The Indemnifying Party shall be obligated to
pay the reasonable fees and expenses of such separate counsel to
the extent the Indemnified Party is entitled to indemnification
by the Indemnifying Party with respect to such claim or
Proceeding under this Section 8(d). If the Indemnifying Party
assumes the defense of any such claim or Proceeding, the
Indemnifying Party shall select counsel reasonably acceptable to
such Indemnitee to conduct the defense of such claim or
Proceeding, shall take all steps necessary in the defense or
settlement thereof and shall at all times diligently and promptly
pursue the resolution thereof. If the Indemnifying Party shall
have assumed the defense of any claim or Proceeding in accordance
with this Section 8(d), the Indemnifying Party shall be
authorized to consent to a settlement of, or the entry of any
judgment arising from, any such claim or Proceeding, with the
prior written consent of such Indemnitee, not to be unreasonably
withheld; provided, however, that the Indemnifying Party shall
pay or cause to be paid all amounts arising out of such
settlement or judgment concurrently with the effectiveness
thereof; provided further, that the Indemnifying party shall not
be authorized to encumber any of the assets of any Indemnitee or
to agree to any restriction that would apply to any Indemnitee or
to its conduct of business; and provided further, that a
condition to any such settlement shall be a complete release of
such Indemnitee and its Affiliates, directors, officers,
employees and agents with respect to such claim, including any
reasonably foreseeable collateral consequences thereof. Such
Indemnitee shall be entitled to participate in (but not control)
the defense of any such action, with its own counsel and at its
own expense. Each Indemnitee shall, and shall cause each of its
Affiliates, directors, officers, employees and agents to,
cooperate fully with the Indemnifying Party in the defense of any
claim or Proceeding being defended by the Indemnifying Party
pursuant to this Section 8(d). If the Indemnifying Party does
not assume the defense of any claim or Proceeding resulting
therefrom in accordance with the terms of this Section 8(d), such
Indemnitee may defend against such claim or Proceeding in such
manner as it may deem appropriate, including settling such claim
or Proceeding after giving notice of the same to the Indemnifying
Party, on such terms as such Indemnitee may deem appropriate. If
any
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CUSIP No. 720035302 Schedule 13D Page 52 of 67 Pages
Indemnifying Party seeks to question the manner in which such
Indemnitee defended such claim or Proceeding or the amount of or
nature of any such settlement, such Indemnifying Party shall have
the burden to prove by a preponderance of the evidence that such
Indemnitee did not defend such claim or Proceeding in a
reasonably prudent manner.
(e) Certain Definitions. As used in this Section 8, (a)
"Affiliate" means, with respect to any person or entity, any
person or entity directly or indirectly controlling, controlled
by or under direct or indirect common control with such other
person or entity; (b) "Associate" means, when used to indicate a
relationship with any person or entity, (1) any other person or
entity of which such first person or entity is an officer,
director or partner or is, directly or indirectly, the beneficial
owner of ten percent (10%) or more of any class of equity
securities, membership interests or other comparable ownership
interests issued by such other person or entity, (2) any trust or
other estate in which such first person or entity has a ten
percent (10%) or more beneficial interest or as to which such
first person or entity serves as trustee or in a similar
fiduciary capacity, and (3) any relative or spouse of such first
person or entity who has the same home as such first person or
entity or who is a director or officer of such first person or
entity; (c) "Damages" means all demands, claims, actions or
causes of action, assessments, losses, damages, costs, expenses,
liabilities, judgments, awards, fines, response costs, sanctions,
taxes, penalties, charges and amounts paid in settlement,
including (1) interest on cash disbursements in respect of any of
the foregoing at the prime rate of Chase Manhattan Bank, as in
effect from time to time, compounded quarterly, from the date
each such cash disbursement is made until the date the party
incurring such cash disbursement shall have been indemnified in
respect thereof, and (2) reasonable out-of-pocket costs, fees and
expenses (including reasonable costs, fees and expenses of
attorneys, accountants and other agents of, or other parties
retained by, such party), and (d) "Proceeding" means any action,
suit, hearing, arbitration, audit, proceeding (public or private)
or investigation that is brought or initiated by or against any
federal, state, local or foreign governmental authority or any
other person or entity.
9. ASSIGNMENT. The rights of the Investor under Section 7(c),
(d) and (j) are transferable only to a Person who acquires at
least twenty percent (20%) of the Purchased Shares issued on the
Closing Date (subject to appropriate adjustment for all stock
splits, dividends, combinations, recapitalizations and the like
where all holders of the Company's Common Stock participate on a
pro rata basis). The rights of the Investor under Section 7(g)
are transferable only to (a) a Majority Owned Subsidiary or (b) a
Person who acquires at least twenty percent (20%) of the
Purchased Shares issued on the Closing Date (subject to
appropriate adjustment for all stock splits, dividends,
combinations, recapitalizations and the like where all holders of
the Company's Common Stock participate on a pro rata basis) in
circumstances where the Investor is transferring such Purchased
Shares to such Person to comply with applicable law or a request
of a governmental authority (including in connection with any
approvals the Investor may be seeking from such governmental
authority relating to any acquisition, license or other business
activity engaged in, or proposed to be engaged in, by the
Investor). No assignment permitted by this Section 9 shall be
effective until the Company is given written notice by the
assigning party stating the name and address of the assignee and
identifying the securities of the Company as to which the rights
in question are being assigned. In all cases, any such assignee
shall receive such assigned rights subject to all the terms and
conditions of this Agreement. The rights of the Investor under
Section 7(h) and (i) may be assigned only to a Majority Owned
Subsidiary;
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CUSIP No. 720035302 Schedule 13D Page 53 of 67 Pages
provided, however that no such assignment of such rights under
Sections 7(h) or (i) shall be effective until the Company is
given written notice by the Investor stating the name and address
of the assignee; and provided further that any such assignee
shall receive such assigned rights subject to all the terms and
conditions of this Agreement.
10. TERMINATION. Prior to the Closing, this Agreement may be
terminated and the purchase and sale of the Shares contemplated
by this Agreement may be abandoned only in accordance with the
following provisions:
(a) by mutual written consent of the Investor and the
Company;
(b) by the Investor or the Company if any court of
competent jurisdiction in the United States or other United
States federal or state governmental authority shall have issued
a final order, decree or ruling, or taken any other final action,
restraining, enjoining or otherwise prohibiting the purchase and
sale of the Shares, and such order, decree, ruling or other
action is or shall have become nonappealable;
(c) by the Investor, upon five (5) days written notice to
the Company, if the Closing shall not have occurred by February
17, 1999 (the "Outside Date"); provided, however, that the
Investor may not terminate this Agreement pursuant to this clause
(c) if the Investor's failure to fulfill any of its obligations
under this Agreement shall have been a principal reason that the
Closing shall not have occurred on or before said date;
(d) by the Company if (i) there shall have been a breach of
any representation or warranty on the part of the Investor set
forth in this Agreement or if any representation or warranty of
the Investor shall have become untrue such that the conditions
set forth in Section 6(a) would be incapable of being satisfied
by the Outside Date; provided, however, that the Company shall
only be able to terminate this Agreement under this Clause (d)(i)
if it has not breached any of its obligations hereunder in any
material respect; or (ii) there shall have been a breach by the
Investor of any of its respective covenants or agreements
hereunder in any material respect, and the Investor has not cured
such breach within ten (10) business days after notice by the
Company thereof; provided, however, that the Company shall only
be able to terminate this Agreement under this Clause (d)(ii) if
it has not breached any of its obligations hereunder in any
material respect; or
(e) by the Investor if (i) there shall have been a breach
of any representation or warranty on the part of the Company set
forth in this Agreement or if any representation or warranty of
the Investor shall have become untrue such that the conditions
set forth in Section 5(a) would be incapable of being satisfied
by the Outside Date; provided, however, that the Investor shall
only be able to terminate this Agreement under this Clause (e)(i)
if it has not breached any of its obligations hereunder in any
material respect; (ii) there shall have been a breach by the
Company of any of its respective covenants or agreements
hereunder in any material respect, and the Company has not cured
such breach within ten (10) business days after notice by the
Investor thereof; provided, however, that the Investor shall only
be able to terminate this Agreement under this Clause (e)(ii) if
it has not breached any of its obligations hereunder in any
material respect; (iii) the Investor shall not be satisfied, in
its sole discretion, with the results
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CUSIP No. 720035302 Schedule 13D Page 54 of 67 Pages
of its review of the Company as contemplated by Section 7(a)(i);
(iv) the Investor shall not be satisfied, in its sole discretion,
with any of the contents of the Disclosure Letter; or (v) the
Investor does not obtain the approvals contemplated by Section
5(j).
In the event of the termination of this Agreement, this Agreement
shall forthwith become void and have no effect without any
liability on the part of any party hereto or its affiliates,
directors, officers or stockholders; provided, however, nothing
contained herein shall relieve any party from liability for any
breach of this Agreement prior to such termination.
11. MISCELLANEOUS.
(a) Successors and Assigns. The terms and conditions of
this Agreement will inure to the benefit of and be binding upon
the respective successors and assigns of the parties.
(b) Governing Law. This Agreement will be governed by and
construed under the internal laws of the State of Delaware,
without reference to principles of conflict of laws or choice of
laws.
(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but
all of which together will constitute one and the same
instrument.
(d) Headings. The headings and captions used in this
Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. All
references in this Agreement to sections, paragraphs, exhibits
and schedules will, unless otherwise provided, refer to sections
and paragraphs hereof and exhibits and schedules attached hereto,
all of which exhibits and schedules are incorporated herein by
this reference.
(e) Notices. Any notice required or permitted under this
Agreement shall be given in writing, shall be effective when
received, and shall in any event be deemed received and
effectively given upon personal delivery to the party to be
notified or three (3) business days after deposit with the United
States Post Office, by registered or certified mail, postage
prepaid, or one (1) business day after deposit with a nationally
recognized courier service such as Fedex for next business day
delivery under circumstances in which such service guarantees
next business day delivery, or one (1) business day after
facsimile with copy delivered by registered or certified mail, in
any case, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature
page hereof or at such other address as the Investor or the
Company may designate by giving at least ten (10) days advance
written notice pursuant to this Section 11(e).
(f) No Finder's Fees. The Investor will indemnify and hold
harmless the Company from any liability for any commission or
compensation in the nature of a finders' or broker's fee for
which the Investor or any of its officers, partners, employees or
consultants, or representatives is responsible. The Company will
indemnify and hold harmless the Investor from any liability for
any commission or compensation in the nature of a finder's or
broker's fee for which the Company or any of its officers,
employees or consultants or representatives is responsible.
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CUSIP No. 720035302 Schedule 13D Page 55 of 67 Pages
(g) Amendments and Waivers. The provisions of Section
7(c), (d) and (j) of this Agreement 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 with the written consent of the Company, the
Investor (so long as the Investor shall hold any of the Purchased
Shares or the shares of Common Stock into which the Purchased
Shares are convertible) and the holders of Purchased Shares
representing at least a majority of the total aggregate number of
Purchased Shares then outstanding (excluding any of such shares
that have been sold in a transaction in which rights under
Section 7(b) are not assigned in accordance with this Agreement
or sold to the public pursuant to SEC Rule 144 or otherwise).
The remaining provisions of this Agreement (including the
provisions of Clauses (e), (f), (g), (h) and (i) (j) of Section
7, and all of Section 8, may not be amended without the written
consent of the Company and the Investor, which may be withheld in
either of their sole and absolute discretions. Any amendment or
waiver effected in accordance with this Section 11(g) will be
binding upon the Investor, the Company and their respective
successors and assigns.
(h) Severability. If any provision of this Agreement is
held to be unenforceable under applicable law, such provision
will be excluded from this Agreement and the balance of the
Agreement will be interpreted as if such provision were so
excluded and will be enforceable in accordance with its terms.
(i) Entire Agreement. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire agreement
and understanding of the parties with respect to the subject
matter hereof and supersedes any and all prior negotiations,
correspondence, agreements. understandings duties or obligations
between the parties with respect to the subject matter hereof.
(j) Further Assurances. From and after the date of this
Agreement upon the request of the Company or the Investor, the
Company and the Investor will execute and deliver such
instruments, documents or other writings, and take such other
actions, as may be reasonably necessary or desirable to confirm
and carry out and to effectuate fully the intent and purposes of
this Agreement.
(k) Meaning of Include and Including. Whenever in this
Agreement the word "include" or "including" is used, it shall be
deemed to mean "include, without limitation" or "including,
without limitation," as the case may be, and the language
following "include" or "including" shall not be deemed to set
forth an exhaustive list.
(l) Fees, Costs and Expenses. All fees, costs and expenses
(including attorney's' fees and expenses) incurred by either part
hereto in connection with the preparation, negotiation and
execution of this Agreement and the consummation of the
transactions contemplated hereby and thereby (including the costs
associated with any filings with, or compliance with any of the
requirements of, any governmental authorities), shall be the sole
and exclusive responsibility of such party.
(m) Competition. Nothing set forth herein shall be deemed
to preclude, limit or restrict the Company's or the Investor's
ability to compete with the other.
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CUSIP No. 720035302 Schedule 13D Page 56 of 67 Pages
(n) Cooperation in HSR Act Filings.
(i) In the event of a conversion of the Purchased
Shares (or any other action by the Investor with respect to any
Securities of the Company held by the Investor) that would
require a filing by the Investor under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), the Investor
and its respective affiliates (including any "ultimate parent
entity", as defined in the HSR Act), and the Company and its
respective affiliates (including any "ultimate parent entity", as
defined in the HSR Act), shall promptly prepare and make their
respective filings and thereafter shall make all required or
requested submissions under the HSR Act or any analogous
applicable law, if required. In taking such actions or making
any such filings, the parties hereto shall furnish information
required in connection therewith and seek timely to obtain any
applicable actions, consents, approvals or waivers of
governmental authorities; provided, however, that the parties
hereto shall cooperate with each other in connection with the
making of all such filings to the extent permitted by applicable
law. Without limiting the generality of the foregoing, to the
extent permitted by applicable law and so long as the following
will not involve the disclosure of confidential or proprietary
information of one party hereto to another, each party shall
cooperate with the other by (a) providing copies of all documents
to be filed to the non-filing party and its advisors prior to
filing and, if requested, accepting reasonable additions,
deletions or changes suggested in connection therewith and (b)
providing to each other party copies of all correspondence from
and to any governmental authority in connection with any such
filing.
(ii) Notwithstanding the foregoing, neither the
Investor nor any of its affiliates shall be under any obligation
to comply with any request or requirement imposed by the Federal
Trade Commission (the "FTC"), the Department of Justice (the
"DofJ") or any other governmental authority in connection with
the compliance with the requirements of the HSR Act, or any other
applicable law, if the Investor, in the exercise of its
reasonable discretion, deems such request or requirement unduly
burdensome. Without limiting the generality of the foregoing,
the Investor shall not be obligated to comply with any request
by, or any requirement of, the FTC, the DofJ or any other
governmental authority: (i) to disclose information the Investor
deems it in its best interests to keep confidential; (ii) to
dispose of any assets or operations; or (iii) to comply with any
proposed restriction on the manner in which it conducts its
operations. In the event the Investor shall receive a second
request in respect of its HSR Filing determined by it to be
unduly burdensome and it shall prove unable to negotiate a means
satisfactory to the Investor for complying with such burdensome
second request, or the Federal Trade Commission or Department of
Justice shall impose any condition on the Investor or its
affiliates in respect thereof deemed unacceptable by the
Investor, the Company and the Investor shall cooperate in good
faith to negotiate an alternative transaction that provides the
Investor with the economic benefits it would receive if it
converted the Purchased Shares (or took any such other action
referenced in the first parenthetical in the first sentence of
Clause (i)).
(o) Rights Plan. Without limiting the generality of
Section 11(j), in the event that the Investor desires to take any
action permitted by this Agreement, and such action would cause a
"Common Stock Event" or any similar event under the Rights Plan
(including any successor plan or other plan or mechanism adopted
by the Company that has the effect or purpose of discouraging an
acquisition of all or any portion of the Company, whether by
means of a merger,
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 57 of 67 Pages
tender offer, acquisition of assets or stock, or otherwise, the
"Rights Plan"), or would trigger or activate any provision of any
state or other antitakeover statute, the Company shall take all
actions necessary (including action by its Board of Directors) to
permit the Investor to take such permitted action without causing
any such "Common Stock Event," similar event, trigger or
activation.
(j) Stock Splits, Dividends and other Similar Events. The
provisions of this Agreement (including the number of shares of
Series A Preferred Stock, Common Stock and other securities
described herein) shall be appropriately adjusted to reflect any
stock split, stock dividend, reorganization or other similar
event that may occur with respect to the Company after the date
hereof.
[The balance of this page is intentionally left blank.]
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 58 of 67 Pages
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
PICTURETEL CORPORATION INTEL CORPORATION
By: ----------------------- By: -----------------------
- ---------------------------- ----------------------------
Printed Name Printed Name
- ---------------------------- ----------------------------
Title Title
- ---------------------------- ----------------------------
Date Signed Date Signed
Address: Address:
100 Minuteman Road 2200 Mission college
Andover, Massachusetts 01810 Boulevard
Santa Clara, California 95052
Telephone No: (978) 292-5000 Telephone No.: (408) 765-
1240
Facsimile No: (978) 292-3334 Facsimile No.: (408) 765-
6038
with copies to: with copies to:
Picturetel Corporation Intel Corporation
Attention: General Counsel Attention: General Counsel
100 Minuteman Road 2200 Mission College
Andover, Massachusetts 01810 Boulevard
Santa Clara, California 95052
and and
Ropes & Gray Gibson, Dunn & Crutcher
Attention: Howard Fuguet Attention: Kenneth R. Lamb
One International Place One Montgomery Street, Suite
Boston, Massachusetts 2600
San Francisco, California
94104
Telephone No.: (617) 951-7292 Telephone No.: (415) 393-8382
Facsimile No.: (617) 951- Facsimile No.: (415) 986-
7050 5309
{Signature page to Stock Purchase and Investor Rights Agreement
between INTEL CORPORATION and PICTURETEL CORPORATION}
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 59 of 67 Pages
EXHIBIT 2
The following release ran over BusinessWire at 5:00am (PDT)
today.
Contact: Linda Bonniksen
Intel Corporation
(503) 264-2927
[email protected]
Kevin Flanagan
PictureTel Corporation
(978) 292-5178
[email protected]
INTEL, PICTURETEL TEAM TO ACCELERATE GROWTH
OF VIDEOCONFERENCING
Companies to Jointly Develop New PC-based Products;
Intel to Invest $30.5 Million in PictureTel
Editor's Note: Intel and PictureTel executives will host a
teleconference to discuss the details of this agreement and
answer questions at 10 a.m. PDT/1 p.m. EDT on Tuesday, Jan. 19.
To attend the teleconference, dial (800) 967-7134 or (719) 457-
2625, confirmation #608514. An electronic copy of the
presentation will be available after 9:30 a.m. PDT/12:30 p.m. EDT
on Intel's Web site at www.intel.com/pressroom and PictureTel's
Web site at www.picturetel.com.
HILLSBORO, Ore., Jan. 19, 1999 - Intel Corporation and PictureTel
Corporation (Nasdaq: PCTL) announced today that they have entered
into a distribution and joint product development agreement to
accelerate growth of videoconferencing worldwide. Intel will also
invest $30.5 million in PictureTel.
In combining their respective strengths in PC technology
innovation and visual collaboration, the two companies will
develop high-quality PC-based solutions for customers' diverse
communication needs and make it easier for customers to access
global services and support. The jointly developed products will
take advantage of rapidly emerging markets and technologies,
including the next-generation Internet, broadband, cable modems,
XDSL, and others. The companies expect the result of their
collaboration to be a larger, more competitive videoconferencing
industry that distributes products and building blocks through a
wider range of channels.
Under terms of the agreement, Intel will provide PictureTel with
distribution rights to sell the Intel(R) ProShare(R) Video System
500, and exclusive worldwide distribution rights to sell and
support the Intel TeamStation(TM) System. In addition to its
expertise in videoconferencing distribution, sales and marketing,
PictureTel will provide its complete line of professional,
managed and maintenance support services for both products. These
Intel products augment PictureTel's existing product line of
group, compact and desktop videoconferencing systems.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 60 of 67 Pages
Intel and PictureTel also agreed to begin joint development of
videoconferencing and collaboration products based on a common PC-
based technology platform. The common platform will be the
foundation for future products that will feature communication
and multimedia capabilities such as collaboration over LANs,
streaming audio and video, and real-time conferencing. The full
benefits of this joint development agreement can be expected in
the year 2000. These future products -- which will operate over
multiple networks, including IP, ISDN and ATM -- will complement
PictureTel's existing product line and will be marketed under the
PictureTel brand name. Intel plans to market the resulting
building-block components to other manufacturers and integrators.
"Through the strength of PictureTel's global distribution and
service network, we expect a significant worldwide increase in
the use of PC-based videoconferencing products," said Gerhard H.
Parker, executive vice president of Intel and general manager of
the New Business Group. "We are delighted to have the global
leader in visual collaboration embrace the PC architecture as the
core building-block for emerging videoconferencing solutions."
The alliance will create the world's most comprehensive and
widely distributed visual collaboration solutions, which will be
easier for customers to deploy and use.
"The combination of Intel's market-leading PC technology and
PictureTel's global leadership in visual collaboration
applications will propel videoconferencing forward into the new
millennium," said Bruce R. Bond, chairman and CEO of PictureTel.
"By working together to develop new products and market segments,
we will deliver the solutions that will enable customers around
the world to use visual collaboration in their mission-critical
activities and make their businesses more productive."
About Intel TeamStation System
Intel TeamStation System is a conference room workstation that
combines videoconferencing, Internet access, corporate network
access and PC applications in one convenient system. Based on the
Intel Pentium(R) II processor, the Intel TeamStation is a
turnkey, high-performance system that brings increased
productivity to conference rooms. Current manufacturer's
suggested retail price (MSRP) for the Intel TeamStation System
with 128 Kbps capability is $8,999, and $11,999 for 384 Kbps
capability.
About Intel ProShare Video System 500
Intel ProShare Video System 500 is an add-in kit for desktop PCs.
Priced at $799 (U.S. dollars) MSRP, it provides excellent audio
and video quality over both ISDN and LAN transports, and offers
fully integrated data-sharing capabilities. With its single-
board design, Intel ProShare Video System 500 can be installed in
approximately 30 minutes.
About PictureTel
PictureTel Corporation is the world leader in developing,
manufacturing and marketing a full range of visual- and audio-
collaboration solutions. The company's systems meet customers'
collaboration needs from the desktop to the boardroom.
PictureTel also markets network
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 61 of 67 Pages
conferencing servers and a comprehensive portfolio of
enterprisewide services. PictureTel collaboration products and
services eliminate the barrier of distance, enabling people to be
Anywhere Now(TM). Additional PictureTel information is available
on the Internet at www.picturetel.com.
About Intel
Intel, the world's largest chip maker, is also a leading
manufacturer of computer, networking and communications products.
Additional information about Intel is available at
www.intel.com/pressroom.
-30-
*Third party marks and brands are property of their respective
holders.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 62 of 67 Pages
Intel, ProShare, and Pentium are registered trademarks and
TeamStation is a trademark of Intel Corporation. PictureTel is a
registered trademark and Anywhere Now is a trademark of
PictureTel Corporation.
Intel Confidential
Intel and PictureTel Agreement; Equity Investment
Prepared by Linda Bonniksen
January 19, 1999
Background
Today, Intel Corporation and PictureTel Corporation announced
that they have entered into a distribution and joint product
development agreement to accelerate growth of videoconferencing
worldwide. Intel will also invest $30.5 million in PictureTel.
Key Contacts:
Please direct all business press calls to Bill Calder at 503-264-
5669 and trade press and analyst calls to Linda Bonniksen at 503-
264-2927.
Key Messages:
O Intel and PictureTel are combining their respective strengths
in PC technology innovation and visual collaboration to
develop high-quality solutions for customers' diverse
communication needs and to make it easier for customers to
access global services and support.
O The companies expect the result of their collaboration to be
a larger, more competitive videoconferencing industry
worldwide that distributes products and building blocks
through a wider range of channels.
O Intel will provide PictureTel with exclusive distribution
rights to sell and support the Intel(R) TeamStation(TM)
System worldwide and non-exclusive rights to sell Intel(R)
ProShare(R) Video System 500 worldwide.
O Intel and PictureTel will begin joint development of
videoconferencing and collaboration products based on a
common PC-based technology platform.
O Intel will also invest $30.5 million in PictureTel.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 63 of 67 Pages
Questions & Answers:
Q1. What is the agreement?
A1. The agreement has three primary components:
O Intel will provide PictureTel with exclusive worldwide
distribution rights to sell and support the Intel(R)
TeamStation(TM) System, and non-exclusive rights to sell
and support the Intel(R) ProShare(R) Video System 500.
PictureTel will provide worldwide service and support for
both products.
O Intel will invest $30.5 million in PictureTel.
O The companies will jointly develop new PC-based
products. The full benefits of this development
agreement can be expected in 2000.
The joint development activities of Intel and PictureTel
will result in high-quality solutions for customers' diverse
communication needs and make it easier for customers to
access global services and support. We believe the result of
our collaboration will be a larger, more competitive
videoconferencing industry that distributes products and
building blocks through a wider range of channels.
Q2. Why are you doing this?
A2. Intel and PictureTel are working together to accelerate the
growth of videoconferencing. Both companies believe
industry expansion will be driven by multi-purpose PC-based
solutions. The agreement allows each company to focus on
its respective core strengths in the areas of product,
distribution and support - PictureTel as a provider of high-
quality end-user solutions and worldwide support, and Intel
as a developer of standard PC and multimedia building
blocks. By combining their respective strengths, the two
companies will expand the distribution for PC-based
videoconferencing systems and provide the market segment
with better products, support and services.
Q3. How will this agreement benefit customers?
A3. In the short term, customers will gain easier access to
multi-purpose PC-based videoconferencing systems with
complete services and support worldwide. In the future, the
joint development effort will combine the respective
strengths of the two companies in PC technology and visual
collaboration to develop high-quality solutions that meet
the diverse communication needs of customers.
Q4. How will this agreement affect the channel?
A4. The agreement will provide the industry with more feature-
rich products that are easier for customers to buy and
easier for channels to sell. We fully expect that this
agreement will expand the videoconferencing market segment,
creating increased revenue opportunities in the channel.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 64 of 67 Pages
Q5. What are the details of Intel's equity investment in
PictureTel?
A5. Intel will invest $30.5 million in PictureTel. The
investment will be in the form of non-voting Preference
Shares. Intel is not disclosing any additional details of
the investment at this time. For more information on the
investment, contact PictureTel.
Q6. Does this agreement mean that Intel is withdrawing from the
videoconferencing industry?
A6. No. We are migrating to a model of providing standard PC
building blocks for this industry. This agreement allows
each company to focus on its respective core strengths in
the areas of product development, distribution and support
to accelerate the industry's growth. PictureTel will focus
on its expertise in delivering high-quality end-user visual
collaboration solutions with worldwide distribution, service
and support. Intel will provide PC industry expertise as a
developer of standard building blocks that take advantage of
the rich multimedia capabilities of the PC. By working
together, we can provide the market with better products,
support and services. Intel's investment underscores its
commitment to the videoconferencing industry.
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 65 of 67 Pages
Contact: Tom Waldrop
Intel Corporation
(408) 765-8478
[email protected]
Kevin Flanagan
PictureTel Corporation
(978) 292-5178
[email protected]
INTEL AND PICTURETEL PROVIDE FURTHER
DETAILS REGARDING INVESTMENT
SANTA CLARA, Calif., Jan. 19, 1999 - Earlier today Intel
Corporation and PictureTel Corporation (Nasdaq: PCTL) announced
that they have entered into a distribution and joint product
development agreement to accelerate growth of videoconferencing
worldwide. It was also announced that Intel would invest $30.5
million in PictureTel. In connection with the investment, Intel
and PictureTel entered into an agreement pursuant to which Intel
would make a $30.5 million investment for nonvoting Series A
convertible preferred stock, comprising approximately 10 percent
of PictureTel's outstanding equity after the investment. The
preferred stock is convertible into PictureTel common stock on a
one-for-one basis. The closing of the transaction is subject to
customary closing conditions, including the completion of due
diligence to Intel's satisfaction. The transaction is expected
to close on or before February 17, 1999.
PictureTel Corporation is the world leader in developing,
manufacturing and marketing a full range of visual- and audio-
collaboration solutions. The company's systems meet customers'
collaboration needs from the desktop to the boardroom. PictureTel
also markets network conferencing servers and a comprehensive
portfolio of enterprisewide services. PictureTel collaboration
products and services eliminate the barrier of distance, enabling
people to be Anywhere Now(TM). Additional PictureTel information
is available on the Internet at www.picturetel.com.
Intel, the world's largest chip maker, is also a leading
manufacturer of computer, networking and communications products.
Additional information about Intel is available at
www.intel.com/pressroom.
-30-
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 66 of 67 Pages
EXHIBIT 3
January 18, 1999
Picturetel Corporation
100 Minuteman Road
Andover, Massachusetts 01810
Attention: President
Re: Stock Purchase and Investor Rights Agreement
Gentlemen:
This letter is being written with reference to that certain Stock
Purchase and Investor Rights Agreement of even date herewith
between you and the undersigned (the "Agreement") and sets forth
our understanding an agreement with respect to certain matters
relating thereto. All capitalized terms not defined herein shall
have the meanings ascribed to such terms in the Agreement.
Board Materials
Section 7(f)(i) of the Agreement obligates the Company to
"provide to the Investor, concurrently with the members of the
Board or [each] Board committee, ... a copy of all materials
provided to" members of the Board or such Board committee. This
section of the Agreement obviates this obligation of the Company
if a majority of the disinterested members of the Board make
certain determinations. The Company and the Investor each
acknowledges and agrees that any such determination may be made,
not only by a majority of the disinterested members of the Board,
but also solely by the Chairman of the Audit Committee of the
Board, any such determination to be made in good faith and
evidenced in writing and kept with the corporate records of the
Company.
Right of Notification and Negotiation
In the event that the Investor intends to sell Purchased Shares,
or shares of Common Stock issued following conversion of
Purchased Shares (collectively, "Shares"), in a privately
negotiated transaction to a person or entity other than the
Company, where the number of shares of Common Stock being sold
directly and underlying any such Purchased Shares being sold,
exceeds one percent (1%) of the number of outstanding shares of
Common Stock as set forth in the most recent filing made by the
Company under the Securities Exchange Act of 1934, the Investor,
prior to such sale, shall request that such person or entity
state in writing that such person or entity, to the best of such
person's or entity's belief, will not hold, after such purchase
of the Shares from the Investor and any other purchases currently
contemplated by such person or entity, more than five percent
(5%) of the outstanding shares of Common Stock of the Company.
In the event that such person or entity supplies such written
statement, the Investor shall be free to sell to such person or
entity such Shares proposed to be sold. In the event that such
person or
<PAGE>
CUSIP No. 720035302 Schedule 13D Page 67 of 67 Pages
entity is unwilling to supply such written statement, or such
person or entity states that, following such purchase from the
Investor and any other purchases currently contemplated by such
person or entity, such person or entity will own more than five
percent (5%) of the outstanding shares of Common Stock of the
Company, the Investor agrees not to sell such Shares to such
person or entity without first providing the Company with written
notice of the Investor's intent to sell such Shares. Such notice
shall set forth the number of Shares proposed to be sold and the
proposed sales price.
For a period of the shorter of three (3) calendar days and two
(2) business days after delivery of such written notice, the
Investor shall negotiate in good faith with the Company with
respect to the purchase by the Company from the Investor of such
Shares. At the end of such period, the Investor shall be free to
sell such Shares to such proposed purchaser, or enter into an
agreement with such proposed purchaser with respect thereto.
The rights of the Company described in this "Right of
Notification and Negotiation" section shall expire at the end of
the Initial Rights Period.
If the foregoing accurately sets forth your understanding of our
agreement, please acknowledge that fact by executing this letter
on the signature block provided below.
Intel Corporation
By: -------------------------
Name:
Title:
Agreed and accepted:
Picturetel Corporation
By: -------------------------
Name:
Title:
Date: January 18, 1999
