EXHIBIT 10.8
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PERITUS SOFTWARE SERVICES, INC.
Note and Warrant Purchase Agreement
Dated as of May 30, 1995
PERITUS SOFTWARE SERVICES, INC.
Note and Warrant Purchase Agreement
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Dated as of May 30, 1995
INDEX
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Page
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ARTICLE I................................................................... 1
PURCHASE. SALE AND TERMS OF NOTES AND WARRANTS............................. 1
1.01. The Notes......................................................... 1
1.02. The Warrants...................................................... 1
1.03. Purchase and Sale of Notes and Warrants........................... 1
(a) The Closing.................................................. 1
(b) Allocation of Purchase Price................................. 2
(c) Use of Proceeds.............................................. 2
1.04. Payments and Endorsements......................................... 2
1.05. Redemptions....................................................... 2
(a) Required Redemptions......................................... 2
(b) Optional Redemptions With Premium............................ 2
(c) Notice of Redemptions; Pro rata Redemptions.................. 3
1.06. Payment on Non-Business Days...................................... 3
1.07. Registration, etc................................................. 3
1.08. Transfer and Exchange of Notes.................................... 4
1.09. Replacement of Notes.............................................. 4
1.10. Subordination..................................................... 4
(a) Payment of Senior Debt....................................... 5
(b) No Payment on Notes Under Certain Conditions................. 5
(c) Payments Held in Trust....................................... 5
(d) Subrogation.................................................. 6
(e) Scope of Section............................................. 6
(f) Survival of Rights........................................... 6
(g) Amendment or Waiver.......................................... 6
(h) Senior Debt Defined.......................................... 7
1.11. Representations by the Purchaser.................................. 7
1.12. Disclosure of Information by the Purchaser........................ 7
ARTICLE II.................................................................. 8
CONDITIONS TO PURCHASER'S OBLIGATION........................................ 8
2.01. Representations and Warranties.................................... 8
2.02. Documentation at Closing.......................................... 8
ARTICLE III................................................................. 9
REPRESENTATIONS AND WARRANTIES.............................................. 9
3.01. Organization and Standing......................................... 9
3.02. Corporate Action.................................................. 9
3.03. Governmental Approvals............................................ 10
3.04. Litigation........................................................ 10
3.05. Compliance with Other Instruments................................. 10
3.06. Federal Reserve Regulations....................................... 10
3.07. Title to Assets, Patents.......................................... 11
3.08. Financial Information............................................. 11
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3.09. Taxes............................................................ 11
3.10. ERISA............................................................ 12
3.11. Transactions with Affiliates..................................... 12
3.12. Assumptions or Guaranties of Indebtedness of Other Persons....... 12
3.13. Investments in Other Persons..................................... 12
3.14. Equal Employment Opportunity..................................... 12
3.15. Status of Notes and Warrants as Qualified Investments............ 13
3.16. Securities Act................................................... 13
3.17. Disclosure....................................................... 13
3.18. No Brokers or Finders............................................ 14
3.19. Other Agreements of Officers..................................... 14
3.20. Capitalization; Status of Capital Stock.......................... 14
3.21. Labor Relations.................................................. 14
3.22. Insurance........................................................ 15
3.23. Key Man Insurance................................................ 15
3.24. Books and Records................................................ 15
3.25. Foreign Corrupt Practices Act.................................... 15
3.26. Registration Rights.............................................. 15
ARTICLE IV................................................................. 15
COVENANTS OF THE COMPANY................................................... 15
4.01. Affirmative Covenants Other Than Reporting Requirements.......... 15
(a) Punctual Payment............................................ 15
(b) Payment of Taxes and Trade Debt............................. 16
(c) Maintenance of Insurance.................................... 16
(d) Preservation of Corporate Existence......................... 16
(e) Compliance with Laws........................................ 16
(f) Visitation Rights........................................... 16
(g) Keeping of Records and Books of Account..................... 17
(h) Maintenance of Properties, etc.............................. 17
(i) Compliance with ERISA....................................... 17
(j) Maintenance of Debt to Equity Ratio......................... 17
(k) Maintenance of Consolidated Tangible Net Worth.............. 17
(l) Maintenance of Profitability................................ 17
(m) Maintenance of Debt Service Coverage........................ 17
(n) Foreign Corrupt Practices Act............................... 18
(o) Equal Employment Opportunity................................ 18
(p) Status of Notes and Warrants as Qualified Investments....... 18
(q) Key Man Life Insurance...................................... 18
(r) Attendance at Board Meetings................................ 18
(s) Compensation................................................ 19
(t) Compliance with Security Agreement.......................... 19
(u) Right of Participation...................................... 19
4.02 Negative Covenants............................................... 20
(a) Liens....................................................... 20
(b) Indebtedness................................................ 21
(c) Lease Obligations........................................... 21
(d) Assumptions or Guaranties of Indebtedness of Other Persons.. 21
(e) Mergers, Sale of Assets, etc................................ 22
(f) Investments in Other Persons................................ 22
(g) Distributions............................................... 22
(h) Dealings with Affiliates.................................... 23
(i) Maintenance of Ownership of Subsidiaries.................... 23
(ii)
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(j) Change in Nature of Business.................................. 23
4.03. Reporting Requirements............................................. 23
4.04. Termination of Certain Covenants................................... 25
ARTICLE V.................................................................... 25
REGISTRATION RIGHTS.......................................................... 25
5.01. "Piggy Back" Registration.......................................... 25
5.02. Required Registration.............................................. 26
5.03. Registration on Form S-3........................................... 26
5.04. Effectiveness...................................................... 26
5.05. Indemnification of Holder of Registrable Shares.................... 26
5.06. Indemnification of Company......................................... 27
5.07. Exchange Act Registration.......................................... 28
5.08. Damages............................................................ 29
5.09. Further Obligations of the Company................................. 29
5.10. Lock-Up Agreement.................................................. 30
5.11. Expenses........................................................... 30
5.12. Limitation on Required Registrations............................... 30
ARTICLE V-A.................................................................. 31
PUT OPTION IN LIEU OF REQUIRED REGISTRATION.................................. 31
5A.01. Put Option......................................................... 31
5A.02. Exercise of Put Option............................................. 31
5A.03. Fair Market Value and Valuation Date............................... 31
5A.04. Additional Payments Upon Merger, Etc............................... 32
ARTICLE VI................................................................... 33
EVENTS OF DEFAULT............................................................ 33
6.01. Events of Default.................................................. 33
6.02. Annulment of Defaults.............................................. 35
ARTICLE VII.................................................................. 35
DEFINITIONS AND ACCOUNTING TERMS............................................. 35
7.01. Certain Defined Terms.............................................. 35
7.02. Accounting Terms................................................... 38
ARTICLE VIII................................................................. 38
MISCELLANEOUS................................................................ 38
8.01. No Waiver; Cumulative Remedies..................................... 38
8.02. Amendments, Waivers and Consents................................... 39
8.03. Addresses for Notices, etc......................................... 39
8.04. Costs, Expenses and Taxes.......................................... 40
8.05. Binding Effect; Assignment......................................... 40
8.06. Survival of Representations and Warranties......................... 40
8.07. Prior Agreements................................................... 40
8.08. Severability....................................................... 40
8.09. Governing Law...................................................... 40
8.10. Headings........................................................... 40
8.11. Sealed Instrument.................................................. 41
8.12. Counterparts....................................................... 41
(iii)
EXHIBITS
1.01 Form of Secured Subordinated Notes
1.02 Form of Common Stock Purchase Warrants
2.02 (a) Form of Security Agreement
2.02 (c) Matters to be Covered by Opinion Letter
2.02 (f) Form of Voting Agreement
3.05 Schedule of Indebtedness
3.07 Schedule of Mortgages, Pledges, etc.
3.08 Financial Statements
3.11 Schedule of Transactions with Affiliates
3.15 Certificate Regarding "Qualified Investments"
3.20 Schedule of Capital Stock, Options and Other Rights
(iv)
PERITUS SOFTWARE SERVICES, INC.
000 Xxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
As of May 30, 1995
Massachusetts Capital Resource Company
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Re: Secured Subordinated Notes due
2002 and Common Stock Purchase
Warrants
Gentlemen:
Peritus Software Services, Inc., a Massachusetts corporation (the
"Company"), hereby agrees with Massachusetts Capital Resource Company (the
"Purchaser") as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
1.01. The Notes. The Company has authorized the issuance and sale to the
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Purchaser of the Company's Secured Subordinated Notes, due June 30, 2002, in the
original principal amount of $1,000,000. The Secured Subordinated Notes shall
be substantially in the form set forth in Exhibit 1.01 hereto and are herein
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referred to individually as a "Note" and collectively as the "Notes", which
terms shall also include any notes delivered in exchange or replacement
therefor.
1.02. The Warrants. The Company has also authorized the issuance and sale
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to the Purchaser of the Company's Common Stock Purchase Warrants for the
purchase (subject to adjustment as provided therein) of 125,000 shares of the
Company's Common Stock. The Common Stock Purchase Warrants shall be
substantially in the form set forth in Exhibit 1.02 hereto and are herein
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referred to individually as a "Warrant" and collectively as the "Warrants",
which terms shall also include any warrants delivered in exchange or replacement
therefor.
1.03. Purchase and Sale of Notes and Warrants
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(a) The Closing. The Company agrees to issue and sell to the
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Purchaser, and, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, the Purchaser agrees to purchase, the
Notes and the Warrants for an aggregate purchase price of $1,000,000. Such
purchase and sale shall take place at a closing (the "Closing") to be held at
the office of Messrs. Xxxxx, Xxxxxxx & Xxxxxxxxx, Exchange Place, 00 Xxxxx
Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx, on May 30, 1995 at 1:00 P.M., or on such other
date and at such time as may be mutually agreed upon. At the Closing
the Company will initially issue one Note, payable to the order of the
Purchaser, in the principal amount of $1,000,000 and one Warrant, registered in
the name of the Purchaser, to purchase (subject to adjustment as provided
therein) 125,000 shares of the Company's Common Stock, against delivery to the
Company of a check or a receipt of a wire transfer, in the amount of $1,000,000,
in payment of the full purchase price for the Notes and Warrants.
(b) Allocation of Purchase Price. The Company and the Purchaser,
----------------------------
having adverse interests and as a result of arm's length bargaining, agree that
(i) neither the Purchaser nor any of its partners has rendered or has agreed to
render any services to the Company in connection with this Agreement or the
issuance of the Notes and Warrants; (ii) the Warrants are not being issued as
compensation; and (iii) for the purpose, and within the meaning, of Section
1273(c)(2) of the Internal Revenue Code of 1986, as amended, the issue price of
the Notes is $990,000. The Company and the Purchaser acknowledge that this
allocation is based on the relative fair market values of the Notes and
Warrants. The Company and the Purchaser recognize that this Agreement determines
the original issue discount to be taken into account by the Company and the
Purchaser for federal income tax purposes on the Notes and they agree to adhere
to this Agreement for such purposes.
(c) Use of Proceeds. The Company agrees to use the full proceeds
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from the sale of the Notes and Warrants solely for working capital, acquisitions
and to repay its outstanding Small Business Administration loans and agrees that
full proceeds from the sale of the Notes and Warrants will be utilized for
purposes which increase or maintain equal opportunity employment in the
Commonwealth of Massachusetts.
1.04. Payments and Endorsements. Payments of principal, interest and
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premium, if any, on the Notes, shall be made directly by check duly mailed or
delivered to the Purchaser at its address referred to in Section 8.03 hereof,
without any presentment or notation of payment, except that prior to any
transfer of any Note, the holder of record shall endorse on such Note a record
of the date to which interest has been paid and all payments made on account of
principal of such Note.
1.05. Redemptions.
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(a) Required Redemptions. Beginning on and with September 30, 1998,
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and on the last day of December, March, June and September in each year
thereafter through and including June 30, 2002, the Company will redeem, without
premium, $62,500 in principal amount of the Notes, or such lesser amount as may
be then outstanding, together with all accrued and unpaid interest then due on
the amount so redeemed. On the stated or accelerated maturity of the Notes, the
Company will pay the principal amount of the Notes then outstanding together
with all accrued and unpaid interest then due thereon. No optional redemption of
less than all of the Notes shall affect the obligation of the Company to make
the redemptions required by this subsection.
(b) Optional Redemptions With Premium. The Company may at any time
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on or after July 1, 1996, (no optional redemption being
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permitted prior to said date) redeem the Notes in whole or in part (in integral
multiples of $10,000) together with interest due on the amount so redeemed
through the date of redemption, and a premium equal to the percentage of the
principal amount of the Notes redeemed under this subsection applicable to the
twelve month period in which such redemption is made, as follows:
12-month period
ending Premium
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June 30, 1997 10%
June 30, 1998 8%
June 30, 1999 6%
June 30, 2000 4%
June 30, 2001 2%
June 30, 2002 0%
(c) Notice of Redemptions; Pro rata Redemptions. Notice of any
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optional redemptions pursuant to subsection 1.05(b) shall be given to all
registered holders of the Notes at least ten (10) business days prior to the
date of such redemption. Each redemption of Notes pursuant to subsections
1.05(a) or (b) shall be made so that the Notes then held by each holder shall be
redeemed in a principal amount which shall bear the same ratio to the total
principal amount of Notes being redeemed as the principal amount of Notes then
held by such holder bears to the aggregate principal amount of the Notes then
outstanding.
1.06. Payment on Non-Business Days. Whenever any payment to be made shall
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be due on a Saturday, Sunday or a public holiday under the laws of the
Commonwealth of Massachusetts, such payment may be made on the next succeeding
business day, and such extension of time shall in such case be included in the
computation of payment of interest due.
1.07. Registration, etc. The Company shall maintain at its principal
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office a register of the Notes and shall record therein the names and addresses
of the registered holders of the Notes, the address to which notices are to be
sent and the address to which payments are to be made as designated by the
registered holder if other than the address of the holder, and the particulars
of all transfers, exchanges and replacements of Notes. No transfer of a Note
shall be valid unless made on such register for the registered holder or his
executors or administrators or his or their duly appointed attorney, upon
surrender therefor for exchange as hereinafter provided, accompanied by an
instrument in writing, in form and execution reasonably satisfactory to the
Company. Each Note issued hereunder, whether originally or upon transfer,
exchange or replacement of a Note or Notes, shall be registered on the date of
execution thereof by the Company and shall be dated the date to which interest
has been paid on such Notes or Note. The registered holder of a Note shall be
that Person in whose name the Note has been so registered by the Company. A
registered holder shall be deemed the owner of a Note for all purposes of this
Agreement and, subject to the provisions hereof, shall be entitled to the
principal, premium, if any, and interest evidenced by such Note free from all
equities or rights of setoff or counterclaim between the Company and the
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transferor of such registered holder or any previous registered holder of such
Note.
1.08. Transfer and Exchange of Notes. The registered holder of any Note
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or Notes may, prior to maturity or prepayment thereof, surrender such Note or
Notes at the principal office of the Company for transfer or exchange. Within a
reasonable time after notice to the Company from a registered holder of its
intention to make such exchange and without expense (other than transfer taxes,
if any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes, in such denominations as requested by the registered
holder, for the same aggregate principal amount as the unpaid principal amount
of the Note or Notes so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same terms and
conditions as the Note or Notes so surrendered. Each new Note shall be made
payable to such Person or Persons, or registered assigns, as the registered
holder of such surrendered Note or Notes may designate, and such transfer or
exchange shall be made in such a manner that no gain or loss of principal or
interest shall result therefrom.
1.09. Replacement of Notes. Upon receipt of evidence satisfactory to the
--------------------
Company of the loss, theft, destruction or mutilation of any Note and, if
requested in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor and amount and
dated the date to which interest has been paid, in lieu of such lost, stolen,
destroyed or mutilated Note; provided, however, if any Note of which
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Massachusetts Capital Resource Company, its nominee, or any of its partners is
the registered holder is lost, stolen or destroyed, the affidavit of the
President, Treasurer or any Assistant Treasurer of the registered holder setting
forth the circumstances with respect to such loss, theft or destruction shall be
accepted as satisfactory evidence thereof, and no indemnification bond or other
security shall be required as a condition to the execution and delivery by the
Company of a new Note in replacement of such lost, stolen or destroyed Note
other than the registered holder's written agreement to indemnify the Company.
1.10. Subordination. The Company, for itself, its successors and assigns,
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covenants and agrees, and the Purchaser and each successor holder of the Notes
by his or its acceptance thereof, likewise covenants and agrees, that
notwithstanding any other provision of this Agreement or the Notes, the payment
of the principal of and interest on each and all of the Notes shall be
subordinated in right of payment, to the extent and in the manner hereinafter
set forth, to the prior payment in full of all Senior Debt (as hereinafter
defined) at any time outstanding. The provisions of this Section 1.10 shall
constitute a continuing representation to all Persons who, in reliance upon such
provisions, become the holders of or continue to hold Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are hereby made obligees hereunder the same as if their names were
written herein as such, and they or any of them may proceed to enforce such
provisions against the Company or against the
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holder of any Note without the necessity of joining the Company as a party.
(a) Payment of Senior Debt. In the event of any insolvency or
----------------------
bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, relative to the Company or to
its property, or, in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company or distribution or marshaling of
its assets or any composition with creditors of the Company, whether or not
involving insolvency or bankruptcy, then and in any such event all Senior Debt
shall be paid in full before any payment or distribution of any character,
whether in cash, securities or other property, shall be made on account of the
Notes; and any such payment or distribution made on account of the Notes, except
securities which are subordinated and junior in right of payment to the payment
of all Senior Debt then outstanding in terms of substantially the same tenor as
this Section 1.10, which would, but for the provisions hereof, be payable or
deliverable in respect of the Notes shall be paid or delivered directly to the
holders of Senior Debt (or their duly authorized representatives), in the
proportions in which they hold the same, until all Senior Debt shall have been
paid in full, and every holder of the Notes by becoming a holder thereof shall
have designated and appointed the holder or holders of Senior Debt (and their
duly authorized representatives) as his or its agents and attorney-in-fact to
demand, xxx for, collect and receive such Senior Debt holder's ratable share of
all such payments and distributions and to file any necessary proof of claim
therefor and to take all such other action in the name of the holders of the
Notes or otherwise, as such Senior Debt holders (or their authorized
representatives) may determine to be necessary or appropriate for the
enforcement of this Section 1.10. The Purchaser and each successor holder of the
Notes by its or his acceptance thereof agrees to execute, at the request of the
Company, a separate agreement with any holder of Senior Debt on the terms set
forth in this Section 1.10, and to take all such other action as such holder or
such holder's representative may request in order to enable such holder to
enforce all claims upon or in respect of such holder's ratable share of the
Notes.
(b) No Payment on Notes Under Certain Conditions. In the event that
--------------------------------------------
any default occurs in the payment of the principal of or interest on any Senior
Debt (whether as a result of the acceleration thereof by the holders of such
Senior Debt or otherwise) and during the continuance of such default for a
period up to ninety (90) days and thereafter if judicial proceedings shall have
been instituted with respect to such defaulted payment, or (if a shorter period)
until such payment has been made or such default has been cured or waived in
writing by such holder of Senior Debt then and during the continuance of such
event no payment of principal or interest on the Notes shall be made by the
Company or accepted by any holder of the Notes who has received notice from the
Company or from a holder of Senior Debt of such events.
(c) Payments Held in Trust. In case any payment or distribution
----------------------
shall be paid or delivered to any holder of the Notes before all Senior Debt
shall have been paid in full, despite or in violation or contravention of the
terms of this subordination, such
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payment or distribution shall be held in trust for and paid and delivered
ratably to the holders of Senior Debt (or their duly authorized
representatives), until all Senior Debt shall have been paid in full.
(d) Subrogation. Subject to the payment in full of all Senior Debt
-----------
and until the Notes shall be paid in full, the holders of the Notes shall be
subrogated to the rights of the holders of Senior Debt (to the extent of
payments or distributions previously made to such holders of Senior Debt
pursuant to the provisions of subsections (a) and (c) of this Section 1.10) to
receive payments or distributions of assets of the Company applicable to the
Senior Debt. No such payments or distributions applicable to the Senior Debt
shall, as between the Company and its creditors, other than the holders of
Senior Debt and the holders of the Notes, be deemed to be a payment by the
Company to or on account of the Notes; and for the purposes of such subrogation,
no payments or distributions to the holders of Senior Debt to which the holders
of the Notes would be entitled except for the provisions of this Section 1.10
shall, as between the Company and its creditors, other than the holders of
Senior Debt and the holders of the Notes, be deemed to be a payment by the
Company to or on account of the Senior Debt.
(e) Scope of Section. The provisions of this Section 1.10 are
----------------
intended solely for the purpose of defining the relative rights of the holders
of the Notes, on the one hand, and the holders of the Senior Debt, on the other
hand. Nothing contained in this Section 1.10 or elsewhere in this Agreement or
the Notes is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Debt, and the holders of the Notes, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with the terms thereof, or to
affect the relative rights of the holders of the Notes and creditors of the
Company other than the holders of the Senior Debt, nor shall anything herein or
therein prevent the holder of any Note from accepting any payment with respect
to such Note or exercising all remedies otherwise permitted by applicable law
upon default under such Note, subject to the rights, if any, under this Section
1.10 of the holders of Senior Debt in respect of cash, property or securities of
the Company received by the holders of the Notes.
(f) Survival of Rights. The right of any present or future holder of
------------------
Senior Debt to enforce subordination of the Notes pursuant to the provisions of
this Section 1.10 shall not at any time be prejudiced or impaired by any act or
failure to act on the part of the Company or any such holder of Senior Debt,
including, without limitation, any forbearance, waiver, consent, compromise,
amendment, extension, renewal, or taking or release of security of or in respect
of any Senior Debt or by noncompliance by the Company with the terms of such
subordination regardless of any knowledge thereof such holder may have or
otherwise be charged with.
(g) Amendment or Waiver. The provisions of this Section 1.10 may not
-------------------
be amended or waived in any manner without the consent of the holders of all
then existing Senior Debt.
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(h) Senior Debt Defined. The term "Senior Debt" shall mean (i) all
-------------------
Indebtedness of the Company for money borrowed from banks or other institutional
lenders, including any extension or renewals thereof, whether outstanding on the
date hereof or thereafter created or incurred, which is not by its terms
subordinate and junior to or on a parity with the Notes and which is permitted
hereby at the time it is created or incurred, and (ii) all guaranties by the
Company which are not by their terms subordinate and junior to or on a parity
with the Notes and which are permitted hereby at the time they are made, of
Indebtedness of any Subsidiary if such Indebtedness would have been Senior Debt
pursuant to the provisions of clause (i) of this sentence had it been
Indebtedness of the Company. In making any loans which are (or the guaranties of
which are) intended to be Senior Debt, the lenders or purchasers shall be
entitled to rely as to the fact that such Indebtedness or guaranty is permitted
hereby upon a certificate by the Company's chief financial officer purporting to
show such Indebtedness or guaranty will not result in the Company's failure to
comply with the provisions of Article IV hereof as of the date of the loan or
guarantee.
1.11. Representations by the Purchaser. The Purchaser represents that it
--------------------------------
is its present intention to acquire the Notes and Warrants for its own account
and that the Notes and Warrants are being and will be acquired for the purpose
of investment and not with a view to distribution or resale thereof; subject,
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nevertheless, to the condition that the disposition of the property of the
------------
Purchaser shall at all times be within its control. The acquisition by the
Purchaser of the Notes and Warrants shall constitute a confirmation of this
representation.
1.12. Disclosure of Information by the Purchaser. The Company understands
------------------------------------------
that the Purchaser is a special purpose limited partnership organized under
Chapter 109 of the General Laws of the Commonwealth of Massachusetts and Chapter
816 of the Acts and Resolves of 1977 of the Commonwealth of Massachusetts (the
"Capital Resource Company Act"), and as such, in accordance with such
provisions, the Purchaser, in order to obtain certain benefits for itself and
its partners, is required to file certain reports and otherwise disclose
information relating to the business, financial affairs, and future prospects of
the Company and its affiliates (as defined in the aforesaid legislation) with
the Clerk of the Senate and the Clerk of the House of Representatives of the
General Court of the Commonwealth of Massachusetts, the Secretary of Manpower
Affairs, the Commissioner of Insurance and the Department of Revenue of the
Commonwealth of Massachusetts, and that such reports and other information may
constitute "public records" within the purview of Section 7 of Chapter 4 of the
General Laws of the Commonwealth of Massachusetts. In addition, information
relating to the business, financial affairs and future prospects of the Company
and its affiliates must be disclosed to others in order to obtain independent
confirmation that financing on substantially similar terms to financing provided
pursuant to this Agreement was not elsewhere available to the Company. The
Company hereby authorizes the Purchaser to disclose all such information
relating to the business, financial affairs and future prospects of the Company
and its affiliates as has been or may in the future be presented to the
Purchaser to all such persons as the Purchaser in good xxxxx xxxxx
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necessary or appropriate in order to fulfill its obligations under the Capital
Resource Company Act.
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATION
The obligation of the Purchaser to purchase and pay for the Notes and
Warrants at the Closing is subject to the following conditions:
2.01. Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in Article III hereof shall be true on the
date of the Closing.
2.02. Documentation at Closing. The Purchaser shall have received prior
------------------------
to or at the Closing all of the following, each in form and substance
satisfactory to the Purchaser and its special counsel:
(a) A Security Agreement, in the form attached as Exhibit 2.02(a),
---------------
(the "Security Agreement"), and all related financing statements and other
similar instruments and documents, shall have been executed and delivered to the
Purchaser by a duly authorized officer of the Company.
(b) A certified copy of all charter documents of the Company; a
certified copy of the resolutions of the Board of Directors and, to the extent
required, the stockholders of the Company evidencing approval of this Agreement,
the Notes, the Warrants, the Security Agreement, and other matters contemplated
hereby; a certified copy of the By-laws of the Company; and certified copies of
all documents evidencing other necessary corporate or other action and
governmental approvals, if any, with respect to this Agreement, the Notes, the
Warrants and the Security Agreement.
(c) A favorable opinion of Messrs. Xxxx and Xxxx, counsel for the
Company, as to matters set forth in Exhibit 2.02(b), and as to such other
---------------
matters as the Purchaser, or its special counsel, may reasonably request.
(d) A certificate of the Clerk or an Assistant Clerk of the Company
which shall certify the names of the officers of the Company, authorized to sign
this Agreement, the Notes, the Warrants, the Security Agreement and the other
documents or certificates to be delivered pursuant to this Agreement or the
Security Agreement by the Company, or any of its officers, together with the
true signatures of such officers. The Purchaser may conclusively rely on such
certificates until it shall receive a further certificate of the Clerk or an
Assistant Clerk of the Company canceling or amending the prior certificate and
submitting the signatures of the officers named in such further certificate.
(e) A certificate from a duly authorized officer of the Company
stating that the representations and warranties of the Company contained in
Article III hereof and otherwise made by the Company in writing in connection
with the transactions contemplated
-8-
hereby are true and correct and that no condition or event has occurred or is
continuing or will result from execution and delivery of this Agreement, the
Notes, the Warrants or the Security Agreement which constitute an Event of
Default or would constitute an Event of Default but for the requirement that
notice be given or time elapse or both.
(f) A Voting Agreement, substantially in the form of Exhibit 2.02(f)
---------------
hereto, shall have been entered into among the Company, the Purchaser and
Xxxxxxx X. Xxxx.
(g) A certificate, in the form attached as Exhibit 3.15 hereto, shall
------------
have been executed and delivered by a duly authorized officer of the Company.
(h) Payment for the costs, expenses, taxes and filing fees identified
in Section 8.04 as to which the Purchaser gives the Company notice prior to the
Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants as follows:
3.01. Organization and Standing. The Company is a duly organized and
-------------------------
validly existing corporation in good standing under the laws of the jurisdiction
in which it was organized and has all requisite corporate power and authority
for the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted. The Company is
duly licensed or qualified and in good standing as a foreign corporation
authorized to do business in all jurisdictions wherein the character of the
property owned or leased, or the nature of the activities conducted, by it makes
such licensing or qualification necessary and where the failure to be so
licensed or qualified would have a material adverse effect on the Company. The
Company has no Subsidiaries.
3.02. Corporate Action. The Company has all necessary corporate power and
----------------
has taken all corporate action required to make all the provisions of this
Agreement, the Notes, the Warrants, the Security Agreement and any other
agreements and instruments executed in connection herewith and therewith the
valid and enforceable obligations they purport to be, subject, however, to
bankruptcy, insolvency, reorganization and other similar laws of general
application affecting the rights and remedies of creditors. Sufficient shares
of authorized but unissued Common Stock of the Company have been reserved by
appropriate corporate action in connection with the prospective exercise of the
Warrants. Neither the issuance of the Notes or Warrants, nor the issuance of
shares of Common Stock upon the exercise of the Warrants, is subject to
preemptive or other similar statutory or contractual rights and will not
conflict with any provisions of any agreement or instrument to which the Company
is a party or by which it is bound.
-9-
3.03. Governmental Approvals. No authorization, consent, approval,
----------------------
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the offer,
issuance, sale, execution or delivery by the Company of, or for the performance
by it of its obligations under, this Agreement, the Notes, the Warrants or the
Security Agreement.
3.04. Litigation. There is no litigation or governmental proceeding or
----------
investigation pending or, to the best of the knowledge of the Company,
threatened against the Company affecting any of its properties or assets, or
against any officer, key employee or principal stockholder of the Company where
such litigation, proceeding or investigation, either individually or in the
aggregate, would have a material adverse effect on the Company or which might
call into question the validity of this Agreement, the Notes, the Warrants, the
Security Agreement or any action taken or to be taken pursuant hereto or
thereto, nor, to the best of the knowledge of the Company, has there occurred
any event or does there exist any condition on the basis of which any
litigation, proceeding or investigation might properly be instituted. Neither
the Company, nor, to the best of the knowledge of the Company, any officer, key
employee or principal stockholder of the Company is in default with respect to
any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency affecting the Company.
3.05. Compliance with Other Instruments. The Company is in compliance in
---------------------------------
all respects with the terms and provisions of this Agreement and of its charter
and by-laws and in all material respects with the terms and provisions of the
mortgages, indentures, leases, agreements and other instruments and of all
judgments, decrees, governmental orders, statutes, rules and regulations by
which it is bound or to which its properties or assets are subject. There is no
term or provision in any of the foregoing documents and instruments which
materially adversely affects the business, assets or financial condition of the
Company. Neither the execution and delivery of this Agreement, the Notes, the
Warrants or the Security Agreement, nor the consummation of any transactions
contemplated hereby or thereby has constituted or resulted in or will constitute
or result in a default or violation of any term or provision in any of the
foregoing documents or instruments. A schedule of Indebtedness of the Company
(including lease obligations required to be capitalized in accordance with
applicable Statements of Financial Accounting Standards) is attached as Exhibit
-------
3.05.
----
3.06. Federal Reserve Regulations. The Company is not engaged in the
---------------------------
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Notes or Warrants
will be used to purchase or carry any margin security or to extend credit to
others for the purpose of purchasing or carrying any margin security or in any
other manner which would involve a violation of any of the regulations of the
Board of Governors of the Federal Reserve System.
-10-
3.07. Title to Assets, Patents. Except as is set forth in Exhibit 3.07,
------------------------ ------------
the Company has good and clear record and marketable title in fee to such of its
fixed assets as are real property, and good and merchantable title to all of its
other assets, now carried on its books including those reflected in the most
recent balance sheet of the Company which forms a part of Exhibit 3.08 attached
------------
hereto, or acquired since the date of such balance sheet (except personal
property disposed of since said date in the ordinary course of business) free of
any mortgages, pledges, charges, liens, security interests or other
encumbrances. The Company enjoys peaceful and undisturbed possession under all
leases under which it is operating, and all said leases are valid and subsisting
and in full force and effect. The Company owns or has a valid right to use the
patents, patent rights, licenses, permits, trade secrets, trademarks, trademark
rights, trade names or trade name rights or franchises, copyrights, inventions
and intellectual property rights being used to conduct its business as now
operated and as now proposed to be operated; and the conduct of its business as
now operated and as now proposed to be operated does not and will not conflict
with valid patents, patent rights, licenses, permits, trade secrets, trademarks,
trademark rights, trade names or trade name rights or franchises, copyrights,
inventions and intellectual property rights of others. The Company has no
obligation to compensate any Person for the use of any such patents or such
rights nor has the Company granted to any Person any license or other rights to
use in any manner any of such patents or such rights of the Company.
3.08. Financial Information. The financial statements of the Company
---------------------
attached as Exhibit 3.08 present fairly the financial position of the Company as
------------
at the dates thereof and its results of operations for the periods covered
thereby and have been prepared in accordance with generally accepted accounting
principles consistently applied. The financial statements so attached are: (i)
for the year ended December 31, 1993, compiled by Xxxxx, Chaff & Xxxxxxx
Associates and (ii) for the year ended December 31, 1994 and for the three-month
period ended March 31, 1995, being unaudited and subject to year-end adjustments
consisting of normal recurring items which will not be material in the
aggregate. The Company has no liability contingent or otherwise not disclosed in
the aforesaid financial statements or in the notes thereto that could, together
with all such other liabilities, materially affect the financial condition of
the Company, nor does the Company have any reasonable grounds to know of any
such liability. Since the date of said certified financial statements, (i) there
has been no adverse change in the business, assets or condition, financial or
otherwise, operations or prospects, of the Company; (ii) neither the business,
condition, operations or prospects of the Company nor any of its properties or
assets has been adversely affected as a result of any legislative or regulatory
change, any revocation or change in any franchise, license or right to do
business, or any other event or occurrence, whether or not insured against; and
(iii) the Company has not entered into any material transaction or made any
distribution on its capital stock.
3.09. Taxes. The Company has accurately prepared and timely filed all
-----
federal, state and other tax returns required by law to be filed by it, and all
taxes shown to be due and all additional assessments have been paid or provision
made therefor. The Company knows of no additional assessments or adjustments
pending or
-11-
threatened against the Company for any period, nor of any basis for any such
assessment or adjustment.
3.10. ERISA. No employee benefit plan established or maintained, or to
-----
which contributions have been made, by the Company, which is subject to part 3
of Subtitle B of Title I of The Employee Retirement Income Security Act of 1974,
as amended ("ERISA") had an accumulated funding deficiency (as such term is
defined in Section 302 of ERISA) as of the last day of the most recent fiscal
year of such plan ended prior to the date hereof, and no material liability to
the Pension Benefit Guaranty Corporation has been incurred with respect to any
such plan by the Company.
3.11. Transactions with Affiliates. Except as is set forth in Exhibit
---------------------------- -------
3.11, there are no loans, leases, royalty agreements or other continuing
----
transactions between the Company and any Person owning five percent (5%) or more
of any class of capital stock of the Company or other entity controlled by such
stockholder or a member of such stockholder's family.
3.12. Assumptions or Guaranties of Indebtedness of Other Persons. The
----------------------------------------------------------
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure the
creditor against loss) any Indebtedness of any other Person.
3.13. Investments in Other Persons. The Company has not made any loan or
----------------------------
advance to any Person which is outstanding on the date of this Agreement, nor is
the Company obligated or committed to make any such loan or advance, nor does
the Company own any capital stock or assets comprising the business of,
obligations of, or any interest in, any Person.
3.14. Equal Employment Opportunity. The Company has reviewed its
----------------------------
employment practices and policies and, to the best of its knowledge, the Company
is in full compliance with (a) all applicable laws of the United States, of the
Commonwealth of Massachusetts and of each other applicable jurisdiction,
relating to equal employment opportunity (including, without limitation, Title
VII of the Civil Rights Act of 1964, as amended (42 U.S.C. (S)2000e-17), the Age
Discrimination in Employment Act of 1967, as amended (29 U.S.C. (S)(S)621-634),
the Equal Pay Act of 1963 (29 U.S.C. (S)206(d)), and any rules, regulations and
administrative orders and Executive Orders relating thereto; Mass. Gen. Laws. c.
151B, Mass. Gen. Laws c. 149 (S)24A et seq. and (S)105A et seq., and any rules
or regulations relating thereto; and (b) the applicable terms, relating to equal
employment opportunity, of any contract, agreement or grant the Company has
with, from, or relating (by way of subcontract or otherwise) to any other
contract, agreement or grant of, any federal or state governmental unit
("Government Contract"), including, without limitation, any terms required
pursuant to Federal Executive Order No. 11246 and Massachusetts Executive Order
No. 74 (both as amended). To the best of the Company's knowledge, it has kept
all records required to be kept, and has filed all reports, affirmative action
plans and forms (including, without limitation and where applicable, Form EEO-1)
required to be filed pursuant to any such applicable law
-12-
or the terms of any such Government Contract. The Company has not been subject
to any adverse final determination or order, with respect to any charge of
employment discrimination made against it, by the United States Equal Employment
Opportunity Commission, the Massachusetts Commission Against Discrimination or
any other governmental unit (including, without limitation, any such
governmental unit with which it has a Government Contract), and the Company is
not presently, to the best of its knowledge, subject to any formal proceedings
before, or investigations by, such commissions or governmental units.
3.15. Status of Notes and Warrants as Qualified Investments. The Company
-----------------------------------------------------
has duly authorized the execution and delivery to the Purchaser on behalf of the
Company of the certificate attached as Exhibit 3.15 hereto, setting forth such
------------
statements, information and related data as are necessary to permit the
Purchaser to determine and demonstrate that the Notes and Warrants issued
pursuant to this Agreement will constitute "qualified investments" within the
meaning of that term as set forth in the Capital Resource Company Act and that
the full proceeds of the Notes and Warrants will be used for purposes which will
materially increase or maintain equal opportunity employment in the Commonwealth
of Massachusetts. All such statements, information and related data presented
in such certificate as are not based on estimates and projections of future
events are true and correct as of the date of such certificate and all such
statements, information and related data based upon estimates or projections of
future events have been carefully considered and prepared on behalf of the
Company.
3.16. Securities Act. Neither the Company nor anyone acting on its behalf
--------------
has offered any of the Notes, Warrants or similar securities, or solicited any
offers to purchase or made any attempt by preliminary conversation or
negotiations to dispose of the Notes, Warrants or similar securities, to any
Person other than the Purchaser or the institutions described in Exhibit 3.15.
------------
Neither the Company nor anyone acting on its behalf has offered or will offer to
sell the Notes, Warrants or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Notes and Warrants under the registration provisions of the
Securities Act.
3.17. Disclosure. Neither this Agreement, the Security Agreement, the
----------
financial statements incorporated herein as Exhibit 3.08, the Certificate set
------------
forth as Exhibit 3.15 hereof, nor any other agreement, document, certificate or
------------
written statement furnished to the Purchaser or its special counsel by or on
behalf of the Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading. There is no fact within the special knowledge of the Company or any
of its executive officers which has not been disclosed herein or in writing by
them to the Purchaser and which materially adversely affects, or in the future
in their opinion may, insofar as they can now foresee, materially adversely
affect the business, properties, assets or condition, financial or otherwise, of
the Company. Without limiting the foregoing, the Company has no knowledge or
belief that there exists,
-13-
or there is pending or planned, any patent, invention, device, application or
principle or any statute, rule, law, regulation, standard or code which would
materially adversely affect the condition, financial or otherwise, or the
operations of the Company.
3.18. No Brokers or Finders. No Person has or will have, as a result of
---------------------
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or any agent
of the Company.
3.19. Other Agreements of Officers. To the best of the knowledge of the
----------------------------
Company, no officer or key employee of the Company is a party to or bound by any
agreement, contract or commitment, or subject to any restrictions, particularly
but without limitation in connection with any previous employment of any such
person, which materially and adversely affects, or in the future may (so far as
the Company can reasonably foresee) materially and adversely affect, the
business or operations of the Company or the right of any such person to
participate in the affairs of the Company. To the best of the knowledge of the
Company, no officer or key employee has any present intention of terminating his
employment with the Company and the Company has no present intention of
terminating any such agreement.
3.20. Capitalization; Status of Capital Stock. The Company has a total
---------------------------------------
authorized capitalization consisting of: (i) 2,900,000 shares of Class A Voting
Common Stock, of which 2,006,280 shares are issued and outstanding and (ii)
40,000 shares of Class B Non-Voting Common Stock, no par value, of which 1,750
shares are issued and outstanding. A complete list of the outstanding capital
stock of the Company and the names in which such capital stock is registered is
set forth in Exhibit 3.20 hereto. All the outstanding shares of capital stock
------------
of the Company have been duly authorized, are validly issued and are fully paid
and nonassessable. The shares of Common Stock issuable upon exercise of the
Warrants, when so issued, will be duly authorized, validly issued and fully paid
and nonassessable. Except as otherwise indicated on Exhibit 3.20, there are no
------------
options, warrants or rights to purchase shares of capital stock or other
securities of the Company authorized, issued or outstanding, nor is the Company
obligated in any other manner to issue shares of its capital stock or other
securities. There are no restrictions on the transfer of shares of capital
stock of the Company other than those imposed by relevant state and federal
securities laws. No holder of any security of the Company is entitled to
preemptive or similar statutory or contractual rights, either arising pursuant
to any agreement or instrument to which the Company is a party, or which are
otherwise binding upon the Company. Neither the issuance of the Notes or the
Warrants nor the shares of Common Stock issued upon exercise of the Warrants
will result in an adjustment under the antidilution or exercise rights of any
holders of any outstanding shares of capital stock options, warrants or other
rights to acquire any securities of the Company. The offer and sale of all
shares of capital stock and other securities of the Company issued before the
Closing complied with or were exempt from all federal and state securities laws.
3.21. Labor Relations. To the best of the knowledge of the Company, no
---------------
labor union or any representative thereof has made any
-14-
attempt to organize or represent employees of the Company. There are no unfair
labor practice charges, pending trials with respect to unfair labor practice
charges, pending material grievance proceedings or adverse decisions of a Trial
Examiner of the National Labor Relations Board against the Company. Furthermore,
to the best of the knowledge of the Company, relations with employees of the
Company are good and there is no reason to believe that any labor difficulties
will arise in the foreseeable future.
3.22. Insurance. The Company carries insurance covering its properties
---------
and business adequate and customary for the type and scope of the properties and
business, but in any event in amounts sufficient to prevent the Company from
becoming a co-insurer.
3.23. Key Man Insurance. The Company carries a life insurance policy from
-----------------
a financially sound and reputable insurance company on the life of Xxxxxxx X.
Xxxx, in the face amount of $1,200,000, with the proceeds thereof being payable
to the Company.
3.24. Books and Records. The books of account, ledgers, order books,
-----------------
records and documents of the Company accurately and completely reflect all
material information relating to the business of the Company, the nature,
acquisition, maintenance, location and collection of the assets of the Company,
and the nature of all transactions giving rise to the obligations or accounts
receivable of the Company.
3.25. Foreign Corrupt Practices Act. The Company has reviewed its
-----------------------------
practices and policies and to the best of its knowledge and belief it is not
engaged, nor has any officer, director, employee or agent of the Company
engaged, in any act or practice which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, or any rules or regulations promulgated
thereunder.
3.26. Registration Rights. Other than the Purchaser pursuant to the terms
-------------------
of Article V hereof, no Person has demand or other rights to cause the Company
to file any registration statement under the Securities Act relating to any
securities of the Company or any right to participate in any such registration
statement.
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. Affirmative Covenants Other Than Reporting Requirements. Without
-------------------------------------------------------
limiting any other covenants and provisions hereof, the Company covenants and
agrees that, as long as any of the Notes or Warrants are outstanding, it will
perform and observe the following covenants and provisions and will cause each
Subsidiary to perform and observe such of the following covenants and provisions
as are applicable to such Subsidiary:
(a) Punctual Payment. Pay the principal of, premium, if any, and
----------------
interest on each of the Notes at the times and place and in the manner provided
in the Notes and herein.
-15-
(b) Payment of Taxes and Trade Debt. Pay and discharge, and cause
-------------------------------
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of the Company or any Subsidiary, provided that neither the
Company nor the Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the Company or Subsidiary concerned shall have set aside on its
books adequate reserves with respect thereto. Pay and cause each Subsidiary to
pay, when due, or in conformity with customary trade terms, all lease
obligations, all trade debt, and all other Indebtedness incident to the
operations of the Company or its Subsidiaries, except such as are being
contested in good faith and by appropriate proceedings if the Company or
Subsidiary concerned shall have set aside on its books adequate reserves with
respect thereto.
(c) Maintenance of Insurance. Maintain, and cause each Subsidiary to
------------------------
maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Company or such Subsidiary operates, but in any
event in amounts sufficient to prevent the Company or such Subsidiary from
becoming a co-insurer.
(d) Preservation of Corporate Existence. Preserve and maintain, and
-----------------------------------
cause each Subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties; provided, however, that nothing herein contained shall
-------- -------
prevent any merger, consolidation or transfer of assets permitted by subsection
4.02(e). Preserve and maintain, and cause each Subsidiary to preserve and
maintain, all licenses and other rights to use patents, processes, licenses,
trademarks, trade names, inventions, intellectual property rights or copyrights
owned or possessed by it and necessary to the conduct of its business.
(e) Compliance with Laws. Comply, and cause each Subsidiary to
--------------------
comply, with all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which could materially adversely
affect its business or condition, financial or other.
(f) Visitation Rights. At any reasonable time and from time to time,
-----------------
permit the Purchaser or any agents or representatives thereof, to examine and
make copies of and extracts from the records and books of account of, and visit
and inspect the properties of, the Company and any Subsidiary, and to discuss
the affairs, finances and accounts of the Company and any Subsidiary with any of
their officers or directors and independent accountants. Except for disclosures
(i) pursuant to the Capital Resource Company Act as provided for in Section
1.12, (ii) to partners and advisors in connection with the
-16-
Purchaser's valuation process and (iii) in connection with the enforcement of
its rights under this Agreement, the Notes, the Warrants and the Security
Agreement, the Purchaser will use its best efforts to hold in confidence any
proprietary or confidential information which it receives from the Company
pursuant to this subsection 4.01(f).
(g) Keeping of Records and Books of Account. Keep, and cause each
---------------------------------------
Subsidiary to keep, adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company and
such Subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
(h) Maintenance of Properties, etc. Maintain and preserve, and cause
------------------------------
each Subsidiary to maintain and preserve, all of its properties, necessary or
useful in the proper conduct of its business, in good repair, working order and
condition, ordinary wear and tear excepted.
(i) Compliance with ERISA. Comply, and cause each Subsidiary to
---------------------
comply, with all minimum funding requirements applicable to any pension or other
employee benefit or employee contribution plans which are subject to ERISA or to
the Internal Revenue Code of 1986, as amended (the "Code"), and comply, and
cause each Subsidiary to comply, in all other material respects with the
provisions of ERISA and the Code, and the rules and regulations thereunder,
which are applicable to any such plan. Neither the Company nor any Subsidiary
will permit any event or condition to exist which could permit any such plan to
be terminated under circumstances which would cause the lien provided for in
Section 4068 of ERISA to attach to the assets of the Company or any Subsidiary.
(j) Maintenance of Debt to Equity Ratio. Maintain a ratio of
-----------------------------------
Consolidated Indebtedness, other than Indebtedness represented by the Notes, to
Consolidated Tangible Net Worth of not more than 1.50 to 1.00, such ratio to be
measured at the end of each fiscal quarter of the Company.
(k) Maintenance of Consolidated Tangible Net Worth. Maintain a
----------------------------------------------
Consolidated Tangible Net Worth of not less than the sum of $757,000 plus eighty
percent (80%) of the Consolidated Net Income (but not less than zero (0)), for
each fiscal quarter of the Company commencing on, with and from the fiscal
quarter ending June 30, 1995, such amount to be measured at the end of each
fiscal quarter of the Company.
(l) Maintenance of Profitability. Maintain Consolidated Net Income
----------------------------
for each period of four (4) consecutive fiscal quarters of the Company of not
less than $500,000, such amount to be measured at the end of each fiscal quarter
of the Company.
(m) Maintenance of Debt Service Coverage. Maintain a ratio of
------------------------------------
Consolidated Net Earnings Available for Debt Service to the sum of Interest
Charges plus the amount of all principal payments paid or payable during the
applicable period by the Company and its
-17-
Subsidiaries on Indebtedness for money borrowed of not less than 3.0 to 1.0,
such ratio to be measured at the end of each fiscal quarter of the Company.
(n) Foreign Corrupt Practices Act. Comply, and cause each Subsidiary
-----------------------------
to comply, and cause each officer, director, employee and agent of the Company
and each Subsidiary to comply, at all times with the prohibitions on certain
acts and practices set forth in the Foreign Corrupt Practices Act of 1977, and
any rules or regulations promulgated thereunder.
(o) Equal Employment Opportunity. Comply, and cause each Subsidiary
----------------------------
to comply, with all applicable laws of the United States, the Commonwealth of
Massachusetts, and of each other applicable jurisdiction relating to equal
employment opportunity, any rules, regulations, administrative orders and
Executive Orders relating thereto and the applicable terms, relating to equal
employment opportunity, of any Government Contract; and keep, and cause each
Subsidiary to file, all reports, affirmative action plans and forms required to
be filed, pursuant to any such applicable law or the terms of any such
Government Contract; provided, however, the Company or any Subsidiary shall not
-------- -------
be considered to have failed to comply with the foregoing during any period that
any matter relating to the Company's or such Subsidiary's employment practices
is being contested by the Company or such Subsidiary in appropriate proceedings,
or thereafter, if the Company or such Subsidiary complies with any final
determination issued in such proceedings.
(p) Status of Notes and Warrants as Qualified Investments. In the
-----------------------------------------------------
event that any of the statements, information and related data provided by or on
behalf of the Company or any Subsidiary and relied upon by the Purchaser in
determining that the Notes and Warrants constitute "qualified investments"
within the meaning of that term in the Capital Resource Company Act shall be put
in issue in any formal or informal proceedings initiated or conducted by or on
behalf of the Commonwealth of Massachusetts, the Company shall, upon reasonable
notice and at its expense, provide, and, cause each Subsidiary to provide, such
additional information, witnesses and related data as may be reasonably
necessary or appropriate to support the representations and warranties set forth
in Article III.
(q) Key Man Life Insurance. Obtain and maintain, with financially
----------------------
sound and reputable insurance company, term life insurance on the life of
Xxxxxxx X. Xxxx, in the amount of at least $1,200,000, which proceeds shall be
payable to the order of the Company. The Company will not cause or permit any
assignment of the proceeds of said policy, and will not borrow against such
policy. The Company will add one designee of the Purchaser as a notice party to
such policy, and will request that the issuer of such policy provide such
designee with ten (10) days' notice before such policy is terminated (for
failure to pay premium or otherwise) or assigned, or before any change is made
in the designation of the beneficiary thereof.
(r) Attendance at Board Meetings. The Company shall permit the
----------------------------
Purchaser or its designee to have one observer attend each meeting of its Board
of Directors and each meeting of any committee thereof. The Company shall send
to the Purchaser and such designee
-18-
the notice of the time and place of such meeting in the same manner and at the
same time as it shall send such notice to its directors or committee members, as
the case may be. The Company shall also provide to the Purchaser copies of all
notices, reports, minutes and consents at the time and in the manner as they are
provided to the Board of Directors or committee.
(s) Compensation. The Company shall pay to its management or
------------
management of any Subsidiary compensation at a rate of compensation which is not
in excess of that commonly paid to management in companies of similar size, of
similar maturity and in similar businesses and all management compensation and
all policies relating thereto shall be approved in advance by a majority of the
members of that Company's Board of Directors.
(t) Compliance with Security Agreement. Comply at all times with all
----------------------------------
of the terms and conditions of the Security Agreement.
(u) Right of Participation. The Company shall, prior to any issuance
----------------------
by the Company of any of its securities (other than debt securities with no
equity feature), offer to each holder of Registrable Shares, by written notice,
the right, for a period of thirty (30) days, to purchase for cash at a purchase
price equal to the price or other consideration for which such securities are to
be issued, all or any portion of that number of such securities so that, after
giving effect to such issuance, such holder will continue to maintain its same
proportionate equity ownership in the Company as it held as of the date of such
notice; provided, however, that the participation rights pursuant to this
subsection (u) shall not apply to securities issued (A) upon exercise of any of
the Warrants, (B) as a stock dividend or upon any subdivision of shares of
Common Stock, provided that the securities issued pursuant to such stock
dividend or subdivision are limited to additional shares of Common Stock, (C)
pursuant to subscriptions, warrants, options, convertible securities, or other
rights which are listed in Exhibit 3.20, (D) solely in consideration for the
-------------
acquisition (whether by merger or otherwise) by the Company of all or
substantially all of the stock or assets of any other entity, (E) pursuant to a
firm commitment underwritten public offering and (F) upon exercise of options
granted to officers, directors and employees of the Company after the date
hereof to purchase up to an aggregate of 300,000 shares of Common Stock. The
Company's written notice to each holder of Registrable Shares shall describe the
securities proposed to be issued by the Company and specify the number, price,
payment terms and the name or names of the proposed purchaser or purchasers.
Each holder of Registrable Shares may accept the Company's offer as to the full
number of securities offered or any lesser number, by written notice thereof
given by it to the Company at any time prior to the expiration of the aforesaid
thirty (30) day period, in which event the Company shall promptly sell and such
holder shall buy, upon the terms specified, the number of securities agreed to
be purchased by such holder. The Company shall be free at any time prior to
ninety (90) days after the date of its notice of offer to the holders of
Registrable Shares, to offer and sell the number of such securities not agreed
by such holders of Registrable Shares to be purchased by them, at a price and on
payment terms no less favorable to the Company than those specified in such
notice of offer to such holders of Registrable Shares and to the purchaser or
purchasers named in such notice. However, if such third
-19-
party sale or sales are not consummated within such ninety (90) day period, the
Company shall not sell such securities as shall not have been purchased within
such period without again complying with this subsection (u). All calculations
set forth in this subsection (u) shall give effect to and assume the conversion,
exercise and exchange into or for (whether directly or indirectly) shares of
Common Stock of all such securities, that are so convertible, exercisable or
exchangeable.
4.02. Negative Covenants. Without limiting any other covenants and
------------------
provisions hereof, the Company covenants and agrees that, as long as any of the
Notes or Warrants are outstanding, it will comply with and observe the following
covenants and provisions, and will cause each Subsidiary to comply with and
observe such of the following covenants and provisions as are applicable to such
Subsidiary, and will not:
(a) Liens. Create, incur, assume or suffer to exist, or permit any
-----
Subsidiary to create, incur, assume or suffer to exist, any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance (including
the lien or retained security title of a conditional vendor) of any nature, upon
or with respect to any of its properties, now owned or hereinafter acquired, or
assign or otherwise convey any right to receive income, except that the
foregoing restrictions shall not apply to mortgages, deeds of trust, pledges,
liens, security interests or other charges or encumbrances:
(i) for taxes, assessments or governmental charges or levies on
property of the Company or any Subsidiary if the same shall not at the time
be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings;
(ii) imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business;
(iii) arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(iv) securing the performance of bids, tenders, contracts (other
than for the repayment of borrowed money), statutory obligations and surety
bonds;
(v) in the nature of zoning restrictions, easements and rights
or restrictions of record on the use of real property which do not
materially detract from its value or impair its use;
(vi) arising by operation of law in favor of the owner or
sublessor of leased premises and confined to the property rented;
(vii) arising from any litigation or proceeding which is being
contested in good faith by appropriate
-20-
proceedings, provided, however, that no execution or levy has been made;
(viii) described in Exhibit 3.07 which secure the Indebtedness
------------
set forth in Exhibit 3.05, provided that no such lien is extended to cover
------------
other or different property of the Company or any Subsidiary;
(ix) now or hereinafter granted to the Purchaser pursuant to the
Security Agreement; and
(x) now or hereinafter granted to secure Senior Debt.
(b) Indebtedness. Create, incur, assume or suffer to exist, or
------------
permit any Subsidiary to create, incur, assume or suffer to exist, any liability
with respect to Indebtedness except for:
(i) the Notes;
(ii) Indebtedness for money borrowed, provided that such
Indebtedness for money borrowed does not result in the Company's failure to
comply with all of the provisions of Article IV hereof;
(iii) Current Liabilities, other than for borrowed money, which
are incurred in the ordinary course of business; and
(iv) Indebtedness with respect to lease obligations, provided
that such lease obligations do not violate subsection 4.02(c).
(c) Lease Obligations. Create, incur, assume or suffer to exist, or
-----------------
permit any Subsidiary to create, incur, assume or suffer to exist, any
obligations as lessee for the rental or hire of real or personal property in
connection with any sale and leaseback transaction; or become obligated to pay
any rent for real property or personal property under any lease with an original
term, including any lessor options to renew or extend, of more than three years
if the aggregate of consolidated fixed annual rent which would be payable in any
fiscal year by the Company and its Subsidiaries under all such leases would
exceed $1,500,000.
(d) Assumptions or Guaranties of Indebtedness of Other Persons.
----------------------------------------------------------
Assume, guarantee, endorse or otherwise become directly or contingently liable
on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become
directly or contingently liable on (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss) any Indebtedness of any other Person, except
for guaranties by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
-21-
(e) Mergers, Sale of Assets, etc. Merge or consolidate with, or sell,
----------------------------
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) a material portion
of its assets (whether now owned or hereinafter acquired) or sell, assign or
otherwise dispose of (whether in one transaction or in a series of transactions)
any of its accounts receivable (whether now in existence or hereinafter created)
at a discount or with recourse, to, any Person, or permit any Subsidiary to do
any of the foregoing, except for sales or other dispositions of assets in the
ordinary course of business and except that (1) any Subsidiary may merge into or
consolidate with or transfer assets to any other Subsidiary, (2) any Subsidiary
may merge into or transfer assets to the Company, and (3) the Company may merge
any Person into it or otherwise acquire such Person as long as the Company is
the surviving entity, such merger or acquisition does not result in the
violation of any of the provisions of this Agreement and no such violation
exists at the time of such merger or acquisition, and, provided that such merger
or acquisition does not result in the issuance (in one or more transactions) of
shares of the voting stock of the Company representing in the aggregate more
than twenty percent (20%) of the total outstanding voting stock of the Company,
on a fully diluted basis, immediately following the issuance thereof.
(f) Investments in Other Persons. Make or permit any Subsidiary to
----------------------------
make, any loan or advance to any person, or purchase, otherwise acquire, or
permit any Subsidiary to purchase or otherwise acquire, the capital stock,
assets comprising the business of, obligations of, or any interest in, any
Person, except:
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition;
(ii) investments by the Company or a Subsidiary in certificates
of deposit, notes, acceptances and repurchase agreements having a maturity
of not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided
profits of at least $100,000,000 and whose parent holding company has long-
term debt rated Aa1 or higher, and whose commercial paper (if rated) is
rated Prime 1, by Xxxxx'x Investors Service, Inc.;
(iii) investments by the Company or a Subsidiary in the highest-
rated commercial paper having a maturity of not more than one year from the
date of acquisition;
(iv) loans or advances from a Subsidiary to the Company; and
(v) travel and other similar advances to employees of the
Company or any Subsidiary in the ordinary course of business.
(g) Distributions. Declare or pay any dividends, purchase, redeem,
-------------
retire, or otherwise acquire for value any of its capital stock (or rights,
options or warrants to purchase such
-22-
shares) now or hereafter outstanding, return any capital to its stockholders as
such, or make any distribution of assets to its stockholders as such, or permit
any Subsidiary to do any of the foregoing (such transactions being hereinafter
referred to as "Distributions"), except that the Subsidiaries may declare and
------
make payment of cash and stock dividends, return capital and make distributions
of assets to the Company; provided, however, that nothing herein contained shall
-------- -------
prevent the Company from:
(i) effecting a stock split or declaring or paying any dividend
consisting of shares of any class of capital stock to the holders of shares
of such class of capital stock, or
(ii) redeeming any stock of a deceased stockholder out of
insurance held by the Company on that stockholder's life,
if in the case of any such transaction there does not exist at the time of such
Distribution an Event of Default or an event which, but for the requirement that
notice be given or time elapse or both, would constitute an Event of Default and
provided that such Distribution can be made in compliance with the other terms
of this Agreement.
(h) Dealings with Affiliates. Except as is set forth in Exhibit
------------------------ -------
3.11, enter or permit any Subsidiary to enter into any transaction with any
----
holder of 5% or more of any class of capital stock of the Company, or any member
of their families or any corporation or other entity in which any one or more of
such stockholders or members of their immediate families directly or indirectly
holds five percent (5%) or more of any class of capital stock except in the
ordinary course of business and on terms not less favorable to the Company or
the Subsidiary than it would obtain in a transaction between unrelated parties.
(i) Maintenance of Ownership of Subsidiaries. Sell or otherwise
----------------------------------------
dispose of any shares of capital stock of any Subsidiary, except to the Company
or another Subsidiary, or permit any Subsidiary to issue, sell or otherwise
dispose of any shares of its capital stock or the capital stock of any
Subsidiary, except to the Company or another Subsidiary, provided, however, that
-------- -------
nothing herein contained shall prevent any merger, consolidation or transfer of
assets permitted by subsection 4.02(e).
(j) Change in Nature of Business. Make, or permit any Subsidiary to
----------------------------
make, any material change in the nature of its business as carried on at the
date hereof.
4.03. Reporting Requirements. The Company will furnish to Massachusetts
----------------------
Capital Resource Company and each other registered holder of any Note, any
Warrant or any Common Stock issued upon exercise of any Warrant who is or was a
partner of Massachusetts Capital Resource Company:
(a) as soon as possible and in any event within five (5) days after
the occurrence of each Event of Default or each event which, with the giving of
notice or lapse of time or both, would constitute an Event of Default, the
statement of the chief financial
-23-
officer of the Company setting forth details of such Event of Default or event
and the action which the Company proposes to take with respect thereto;
(b) as soon as available and in any event within forty-five (45) days
after the end of each of the first three quarters of each fiscal year of the
Company, consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such quarter and consolidated and consolidating
statements of income and retained earnings and of changes in financial position
of the Company and its Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, all in reasonable detail and duly certified
(subject to year-end audit adjustments) by the chief financial officer of the
Company as having been prepared in accordance with generally accepted accounting
principles consistently applied;
(c) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Company, a copy of the annual audit
report for such year for the Company and its Subsidiaries, including therein
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income and retained earnings and of changes in
financial position of the Company and its Subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all duly certified by independent public accountants of
recognized standing acceptable to the Purchaser;
(d) at the time of delivery of each quarterly and annual statement, a
certificate, executed by the chief financial officer of the Company, stating
that such officer has caused this Agreement, the Notes, the Warrants and the
Security Agreement to be reviewed and has no knowledge of any default by the
Company or any Subsidiary in the performance or observance of any of the
provisions of this Agreement, the Notes, the Warrants or the Security Agreement
or, if such officer has such knowledge, specifying such default and the nature
thereof. Each such certificate shall set forth computations in reasonable
detail demonstrating compliance with the provisions of subsections 4.01(j), (k),
(l) and (m) and subsections 4.02(b) and (c);
(e) promptly upon receipt thereof, any written report submitted to
the Company by independent public accountants in connection with an annual or
interim audit of the books of the Company and its Subsidiaries made by such
accountants to the extent that the Company delivers any such information to its
Board of Directors or any holder of Senior Debt;
(f) prior to the start of each fiscal year, consolidated capital and
operating expense budgets, cash flow projections and income and loss projections
for the Company and its Subsidiaries in respect of such fiscal year, all
itemized in reasonable detail and prepared on a monthly basis, and, promptly
after preparation, any revisions to any of the foregoing;
-24-
(g) promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Company or any Subsidiary of the type described in Section 3.04; and
(h) promptly after sending, making available, or filing the same,
such reports and financial statements as the Company or any Subsidiary shall
send or make available to the stockholders of the Company or the Securities and
Exchange Commission.
4.04. Termination of Certain Covenants. The covenants set forth in
--------------------------------
subsections 4.01(a), (b), (c), (j), (k), (l), (m), (q), (r), (s) and (t) and in
subsections 4.02(a), (b), (c), (d), (e), (f), (g) and (i) shall terminate and be
of no further force or effect when the Notes have been redeemed in their
entirety. Further, all of the covenants set forth in Sections 4.01, 4.02 and
4.03 shall terminate and be of no further force and effect upon the later of (i)
when the Notes have been redeemed in their entirety or (ii) when the Company
shall be subject to the reporting requirements of the Exchange Act.
ARTICLE V
REGISTRATION RIGHTS
5.01. "Piggy Back" Registration. If at any time the Company shall
-------------------------
determine to register under the Securities Act (including pursuant to a demand
of any stockholder of the Company exercising registration rights) any of its
Common Stock of the type which has been or may be issued upon the exercise of
the Warrants, other than on Form S-8 or its then equivalent, it shall send to
each holder of Registrable Shares, including each holder who has the right to
acquire Registrable Shares, written notice of such determination and, if within
thirty (30) days after receipt of such notice, such holder shall so request in
writing, the Company shall use its best efforts to include in such registration
statement all or any part of the Registrable Shares such holder requests to be
registered, except that: (A) if, in connection with any offering involving an
underwriting of Common Stock to be issued by the Company, the managing
underwriter shall impose a limitation on the number of shares of such Common
Stock which may be included in any such registration statement because, in its
judgment, such limitation is necessary to effect an orderly public distribution,
and such limitation is imposed pro rata among the holders of such Common Stock
--- ----
having an incidental ("piggy back") right to include such Common Stock in the
registration statement according to the amount of such Common Stock which each
holder had requested to be included pursuant to such right, then the Company
shall be obligated to include in such registration statement only such limited
portion of the Registrable Shares with respect to which such holder has
requested inclusion hereunder and (B) the Company shall not be required to
include in any registration statement filed under this Section 5.01 the
Registrable Shares of any holder if the estimated aggregate price to the public
of the Registrable Shares which such holder has requested be so included is less
than $50,000. No incidental right under this Section 5.01 shall be construed to
limit any registration required under Section 5.02.
-25-
5.02. Required Registration. If on any two occasions after the earlier of
---------------------
one hundred eighty (180) days after the effective date of the Company's initial
public offering of its Common Stock and three (3) years after the date of this
Agreement, one or more holders of at least forty percent (40%) of the
Registrable Shares shall notify the Company in writing that it or they intend to
offer or cause to be offered for public sale at least twenty percent (20%) of
the Registrable Shares, the Company will so notify all holders of Registrable
Shares, including all holders who have a right to acquire Registrable Shares.
Upon written request of any holder given within thirty (30) days after the
receipt by such holder from the Company of such notification, the Company will,
subject to Section 5.12, use its best efforts to cause such of the Registrable
Shares as may be requested by any holder thereof (including the holder or
holders giving the initial notice of intent to offer) to be registered under the
Securities Act as expeditiously as possible; provided, however, that the
-------- -------
Company's obligation to file a registration statement under this Section 5.02
may be suspended for a period not to exceed ninety (90) days in any twenty-four
(24) month period if there exists at the time material non-public information
relating to the Company which, in the reasonable opinion of the Board of
Directors of the Company, should not be disclosed. If the Company determined to
include shares to be sold by it in any registration requests pursuant to this
Section 5.02, such registration shall be deemed to have been a registration
under Section 5.01 of this Article V.
5.03. Registration on Form S-3. In addition to the rights provided the
------------------------
holder of Registrable Shares in Sections 5.01 and 5.02 above, if the
registration of Registrable Shares under the Securities Act can be effected on
Form S-3 (or any similar form promulgated by the Securities and Exchange
Commission), the Company will promptly so notify each holder of Registrable
Shares, including each holder who has a right to acquire Registrable Shares, and
then will at any time, and from time to time, thereafter, as expeditiously as
possible, use its best efforts to effect qualification and registration under
the Securities Act on said Form S-3 of all or such portion of the Registrable
Shares as the holder or holders shall request; provided, however, that the
-------- -------
number of Registrable Shares requested to be included in such registration
statement shall have an estimated aggregate price to the public of at least
$100,000.
5.04. Effectiveness. The Company will use its best efforts to maintain
-------------
the effectiveness for up to nine (9) months of any registration statement
pursuant to which any of the Registrable Shares are being offered, and from time
to time will amend or supplement such registration statement and the prospectus
contained therein as and to the extent necessary to comply with the Securities
Act and any applicable state securities statute or regulation. The Company will
also provide each holder of Registrable Shares with as many copies of the
prospectus contained in any such registration statement as it may reasonably
request.
5.05. Indemnification of Holder of Registrable Shares. In the event that
-----------------------------------------------
the Company registers any of the Registrable Shares under the Securities Act,
the Company will indemnify and hold harmless each holder and each underwriter of
the Registrable Shares so registered (including any broker or dealer through
whom such shares may be sold) and each person, if any, who controls such holder
or any such
-26-
underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them become subject under the Securities Act or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse each such holder, each such underwriter and
each such controlling person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement, in any preliminary or amended preliminary prospectus
or in the prospectus (or the registration statement or prospectus as from time
to time amended or supplemented by the Company) or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading or any violation by the Company of any rule or regulation promulgated
under the Securities Act applicable to the Company and relating to action or
inaction required of the Company in connection with such registration, unless
such untrue statement or omission was made in such registration statement,
preliminary or amended, preliminary prospectus or prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented) in reliance upon and in conformity with information furnished in
writing to the Company in connection therewith by such holder of Registrable
Shares, any such underwriter or any such controlling person expressly for use
therein. Promptly after receipt by any holder of Registrable Shares, any
underwriter or any controlling person, of notice of the commencement of any
action in respect of which indemnity may be sought against the Company, such
holder of Registrable Shares, or such underwriter or such controlling person, as
the case may be, will notify the Company in writing of the commencement thereof,
and, subject to the provisions hereinafter stated, the Company shall assume the
defense of such action (including the employment of counsel, who shall be
counsel satisfactory to such holder of Registrable Shares, such underwriter or
such controlling person, as the case may be), and the payment of expenses
insofar as such action shall relate to any alleged liability in respect of which
indemnity may be sought against the Company. Such holder of Registrable Shares,
any such underwriter or any such controlling person shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall not be at the expense of
the Company unless the employment of such counsel has been specifically
authorized by the Company. The Company shall not be liable to indemnify any
person for any settlement of any such action effected without the Company's
consent. The Company shall not, except with the approval of each party being
indemnified under this Section 5.05, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the parties being so indemnified of a
release from all liability in respect to such claim or litigation.
5.06. Indemnification of Company. In the event that the Company registers
--------------------------
any of the Registrable Shares under the Securities Act, each holder of the
Registrable Shares so registered will
-27-
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each underwriter of the
Registrable Shares so registered (including any broker or dealer through whom
such of the shares may be sold) and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act from and against
any and all losses, claims, damages, expenses or liabilities, joint or several,
to which they or any of them may become subject under the Securities Act or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Company and each such director,
officer, underwriter or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the prospectus (or the registration statement or
prospectus as from time to time amended or supplemented) or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, but only insofar as any such statement or omission was
made in reliance upon and in conformity with information furnished in writing to
the Company in connection therewith by such holder of Registrable Shares
expressly for use therein; provided, however, that such holder's obligations
-------- -------
hereunder shall be limited to an amount equal to the proceeds to such holder of
the Registrable Shares sold in such registration. Promptly after receipt of
notice of the commencement of any action in respect of which indemnity may be
sought against such holder of Registrable Shares, the Company will notify such
holder of Registrable Shares in writing of the commencement thereof, and such
holder of Registrable Shares shall, subject to the provisions hereinafter
stated, assume the defense of such action (including the employment of counsel,
who shall be counsel satisfactory to the Company) and the payment of expenses
insofar as such action shall relate to the alleged liability in respect of which
indemnity may be sought against such holder of Registrable Shares. The Company
and each such director, officer, underwriter or controlling person shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof but the fees and expenses of such counsel shall not be at
the expense of such holder of Registrable Shares unless employment of such
counsel has been specifically authorized by such holder of Registrable Shares.
Such holder of Registrable Shares shall not be liable to indemnify any person
for any settlement of any such action effected without such holder's consent.
5.07. Exchange Act Registration. If the Company at any time shall list
-------------------------
any of its Common Stock of the type which may be issued upon the exercise of the
Warrants on any national securities exchange and shall register such Common
Stock under the Exchange Act, the Company will, at its expense, simultaneously
list on such exchange and maintain such listing of, all of the Common Stock from
time to time issuable upon exercise of the Warrants. If the Company becomes
subject to the reporting requirements of either Section 13 or Section 15(d) of
the Exchange Act, the Company will use its best efforts to timely file with the
Securities and Exchange Commission such
-28-
information as the Securities and Exchange Commission may require under either
of said Sections; and in such event, the Company shall use its best efforts to
take all action as may be required as a condition to the availability of Rule
144 under the Securities Act (or any successor exemptive rule hereinafter in
effect) with respect to such Common Stock. The Company shall furnish to any
holder of Registrable Shares forthwith upon request (i) a written statement by
the Company as to its compliance with the reporting requirements of Rule 144,
(ii) a copy of the most recent annual or quarterly report of the Company as
filed with the Securities and Exchange Commission, and (iii) such other reports
and documents as a holder may reasonably request in availing itself of any rule
or regulation of the Securities and Exchange Commission allowing a holder to
sell any such Registrable Securities without registration.
5.08. Damages. The Company recognizes and agrees that the holder of
-------
Registrable Shares will not have an adequate remedy if the Company fails to
comply with this Article V and that damages will not be readily ascertainable,
and the Company expressly agrees that, in the event of such failure, it shall
not oppose an application by the holder of Registrable Shares or any other
person entitled to the benefits of this Article V requiring specific performance
of any and all provisions hereof or enjoining the Company from continuing to
commit any such breach of this Article V.
5.09. Further Obligations of the Company. Whenever under the preceding
----------------------------------
Sections of this Article V, the Company is required hereunder to register
Registrable Shares, it agrees that it shall also do the following:
(a) Furnish to each selling holder such copies of each preliminary
and final prospectus and such other documents as said holder may reasonably
request to facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable
Shares covered by said registration statement under the applicable securities or
"blue sky" laws of such jurisdictions as any selling holder may reasonably
request; provided, however, that the Company shall not be obligated to qualify
-------- -------
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to the service of process in suits other than
those arising out of the offer or sale of the securities covered by the
registration statement in any jurisdiction where it is not then so subject;
(c) Furnish to each selling holder a copy of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent public
accountants who have examined and reported on the Company's financial
statements included in the registration statement, to the extent permitted
by the standards of the American Institute of Certified Public Accountants,
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covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' "comfort" letters) with respect to events subsequent to the date of
the financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' "comfort" letters delivered to the underwriters in
underwritten public offerings of securities, to the extent that the Company is
required to deliver or cause the delivery of such opinion or "comfort" letters
to the underwriters in an underwritten public offering of securities;
(d) Permit each selling holder or his counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them;
(e) Furnish to each selling holder a copy of all documents filed and
all correspondence from or to the Securities and Exchange Commission in
connection with any such offering; and
(f) Use its best efforts to insure the obtaining of all necessary
approvals from the National Association of Securities Dealers, Inc.
5.10. Lock-Up Agreement. If requested in writing by the managing
-----------------
underwriter for an underwritten public offering of securities of the Company,
each holder of Registrable Shares shall agree not to sell publicly any
Registrable Shares (other than Registrable Shares being registered in such
offering), without the consent of such managing underwriter, for a period of not
more than one hundred eighty (180) days following the effective date of the
registration statement relating to such offering; provided, however, that all
-------- -------
persons entitled to registration rights with respect to shares of Common Stock,
all other persons selling shares of Common Stock in such offering and all
officers and directors of the Company shall also have agreed not to sell
publicly their Common Stock under the circumstances and pursuant to the terms
set forth in Section 5.10.
5.11. Expenses. In the case of a registration under Section 5.01, 5.02 or
--------
5.03, the Company shall bear all costs and expenses of each such registration,
including, but not limited to, printing, legal and accounting expenses,
Securities and Exchange Commission filing fees and "blue sky" fees and expenses;
provided, however, that the Company shall have no obligation to pay or otherwise
-------- -------
bear (i) any portion of the fees or disbursements of more than one counsel for
the selling holders of Registrable Shares in connection with the registration of
their Registrable Shares, or (ii) any portion of the underwriters' commissions
or discounts attributable to the Registrable Shares being offered and sold by
the holders of Registrable Shares.
5.12. Limitation on Required Registrations. In the event that the Company
------------------------------------
has not previously filed a registration statement under the Securities Act at
the time that the holder or holders of Registrable Shares notify the Company
pursuant to Section 5.02 that they wish to have the Company register all or a
specified portion of the Registrable shares under the Securities Act, then, in
such event and in lieu of such registration, the Company may, by written notice
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to all holders of Registrable Shares delivered within fifteen (15) days
following the end of the thirty (30) day period referred to in Section 5.02,
notify all such holders that the Company will purchase all or any portion of the
Registrable Shares in accordance with the terms and conditions of Article V-A.
The Company's compliance with Article V-A shall be in lieu of, and shall be
deemed to be in satisfaction of, the registration which had been so requested by
the holder or holders of Registrable Shares under Section 5.02 and the holders
of Registrable Shares shall not be entitled to make a further demand for
registration under Section 5.02 for a period of three hundred sixty (360) days
from the date of their prior demand, and any subsequent demand by such holders
shall also be subject to the terms and conditions of the this Section 5.12.
ARTICLE V-A
PUT OPTION IN LIEU OF REQUIRED REGISTRATION
5A.01. Put Option. If the Company shall, in accordance with Section 5.12,
----------
notify the holders of Registrable Shares that it does not wish to file the
registration statement for which a demand has been made under Section 5.02,
then, in such event, the holder of any Registrable Shares shall have the option,
upon written notice to the Company, to require the Company to purchase all or
any portion of the Registrable Shares at a price equal to the then Fair Market
Value (as hereinafter defined) per share of Common Stock of the Company as of
the Valuation Date (as hereinafter defined) multiplied by each Registrable Share
to be so purchased (minus, in the case of any Registrable Shares which have not
been issued upon exercise of the Warrants, the Purchase Price (as that term is
defined in the Warrants) to be paid to the Company upon the exercise of such
Warrant or the portion thereof for the Registrable Shares to be so purchased).
5A.02. Exercise of Put Option. The option granted pursuant to Section
----------------------
5A.01 shall be effected by delivery of written notice to the Company, which
notice shall specify the number of Registrable Shares to be purchased. The
closing of any purchase and sale pursuant to this Article V-A shall be held at
the offices of the Company on a date specified in writing by the Company, which
date shall be not less than ten (10) days nor more than thirty (30) days after
the determination of the Fair Market Value. The purchase price shall be paid by
the Company at such closing by delivery of a bank or certified check in the full
amount of such purchase price. The foregoing notwithstanding, no holder of
Registrable Shares shall be required to sell all or any portion of the
Registrable Shares if such holder does not wish to accept the Fair Market Value
determined in accordance with Section 5A.03.
5A.03. Fair Market Value and Valuation Date.
------------------------------------
(a) For the purposes of this Article V-A, "Fair Market Value" per
share of Common Stock of the Company shall mean an amount determined by dividing
the Company's Fair Market Value, determined as of the Valuation Date, by the sum
of the number of actual outstanding shares of Common Stock as of the Valuation
Date plus the number of shares of Common Stock then issuable upon exercise of
the Warrants at
-31-
the Purchase Price (as that term is defined in the Warrants) then in effect and
the number of shares of Common Stock then issuable upon exercise or conversion
of any other outstanding securities of the Company at their then exercise or
conversion price. The Company's Fair Market Value (which shall be determined on
a consolidated basis including all Subsidiaries and shall assume that the
Company has received the full Purchase Price (as that term is defined in the
Warrants) for all of the shares of Common Stock issuable upon exercise of the
Warrants and the full exercise or conversion price for all other outstanding
securities included in the calculation referred to in the immediately prior
sentence) shall be the price which could be obtained for one hundred percent
(100%) of the equity interest in the Company if the Company were sold to a
willing buyer by a willing seller in a single arm's-length transaction,
determined by considering the Company's consolidated profits after tax, book
value, level of revenues and cash flow as of the Valuation Date.
In order to determine such Fair Market Value, within fifteen (15) days
from the date of the sending of the notice provided for in Section 5A.01,
representatives of the Company and the holder or holders of a majority of the
Registrable Shares to be purchased will use their best efforts to reach
agreement on the Company's Fair Market Value. If they are unable to reach such
agreement within ten (10) days after the end of such fifteen (15) day period,
the Company and such holder or holders will agree on the selection of an
independent appraiser. Such appraiser will have twenty (20) days in which to
determine the Company's Fair Market Value. If the Company and such holder or
holders are unable to reach an agreement as to an independent appraiser within
ten (10) days after the aforesaid ten (10) day period, then two appraisers will
be appointed within five (5) days thereafter to determine the Company's Fair
Market Value, one by the Company and one by the holder or holders of a majority
of the Registrable Shares to be so purchased. Each of the Company and such
holder or holders will cause their appraiser to determine independently the
Company's Fair Market Value within twenty (20) days after the time of their
appointment. If the lesser of the two appraised values so determined (the "Low
Value") exceeds or is equal to ninety percent (90%) of the value of the greater
of the two appraised values (the "High Value"), the Company's Fair Market Value
will be deemed to be equal to the average of the two appraisals. If the Low
Value is less than ninety percent (90%) of the High Value, the two appraisers
will themselves appoint a third appraiser within ten (10) days after the two
appraisals have been rendered. Such third appraiser will have twenty (20) days
in which to determine independently the Company's Fair Market Value. The median
of the three (3) appraised values shall be binding on all parties concerned as
the Company's Fair Market Value. The expenses of the appraisal will be borne
solely by the Company.
(b) "Valuation Date" shall mean the last day of the calendar month
immediately preceding the month in which the notice requesting a required
registration shall have been given by the holder or holders of Registrable
shares pursuant to Section 5.02.
5A.04. Additional Payments Upon Merger, Etc. If at any time within one
------------------------------------
hundred eighty (180) days after a closing pursuant to Section 5A.02, the Company
shall: (A) become party to one or more mergers, consolidations, sales of all or
substantially all of its
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assets or other similar corporate actions pursuant to which the holders of the
Company's Common Stock, in their capacity as such, receive cash, securities or
other property, or the Company is acquired by the purchase of a majority of its
shares of Common Stock, or the Company or its stockholders enter into any
agreement or letter of intent contemplating any of the foregoing transactions or
(B) file a registration statement under the Securities Act, then, in any such
event, the Company shall, simultaneously with the consummation of any such
transaction or the closing date under such registration statement, as the case
may be, make an additional payment to the holder or holders whose Registrable
Shares were so purchased by the Company in an amount equal to the excess, if
any, in the case of clause (A) of the value per share of the cash, securities
and other property that such holder or holders would have received (or that the
Company received in which such holder or holders would have had a beneficial
interest) or in the case of clause (B) the purchase price to the public, less
underwriting discounts and commission, under such registration statement over
the payment received by such holder or holders with respect to such Registrable
Shares.
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default. If any of the following events ("Events of
-----------------
Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of principal of any
of the Notes when due; or
(b) The Company shall fail to pay any interest or premium on any of
the Notes when due and such failure shall continue for five (5) business days;
or
(c) The Company shall default in the performance of any covenant
contained in subsections 4.01(j), (k), (l) or (m) or shall default in the
performance of any covenant contained in Section 4.02; or
(d) Any representation or warranty made by the Company or any
Subsidiary in this Agreement or the Security Agreement or by the Company or any
Subsidiary (or any officers of the Company or any Subsidiary) in any
certificate, instrument or written statement contemplated by or made or
delivered pursuant to or in connection with this Agreement or the Security
Agreement, shall prove to have been incorrect when made in any material respect;
or
(e) The Company or any Subsidiary shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement, the Notes,
the Warrants or the Security Agreement on its part to be performed or observed
and any such failure remains unremedied for ten (10) business days after written
notice thereof shall have been given to the Company by any registered holder of
the Notes; or
(f) The Company or any Subsidiary shall fail to pay any Indebtedness
for borrowed money (other than as evidenced by the
-33-
Notes) owing by the Company or such Subsidiary (as the case may be), or any
interest or premium thereon, when due (or, if permitted by the terms of the
relevant document, within any applicable grace period), whether such
Indebtedness shall become due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, or shall fail to perform any term,
covenant or agreement on its part to be performed under any agreement or
instrument (other than this Agreement or the Notes) evidencing or securing or
relating to any Indebtedness owing by the Company or any Subsidiary, as the case
may be, when required to be performed (or, if permitted by the terms of the
relevant document, within any applicable grace period), if the effect of such
failure to pay or perform is to accelerate, or to permit the holder or holders
of such Indebtedness, or the trustee or trustees under any such agreement or
instrument to accelerate, the maturity of such Indebtedness, unless such failure
to pay or perform shall be waived by the holder or holders of such Indebtedness
or such trustee or trustees; or
(g) The Company or any Subsidiary shall be involved in financial
difficulties as evidenced (i) by its admitting in writing its inability to pay
its debts generally as they become due; (ii) by its commencement of a voluntary
case under Title 11 of the United States Code as from time to time in effect, or
by its authorizing, by appropriate proceedings of its Board of Directors or
other governing body, the commencement of such a voluntary case; (iii) by its
filing an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) by the entry of an order for relief in any involuntary case
commenced under said Title 11; (v) by its seeking relief as a debtor under any
applicable law, other than said Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors, or by its consenting to or acquiescing in such relief;
(vi) by the entry of an order by a court of competent jurisdiction (a) finding
it to be bankrupt or insolvent, (b) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of its creditors,
or (c) assuming custody of, or appointing a receiver or other custodian for, all
or a substantial part of its property; or (vii) by its making an assignment for
the benefit of, or entering into a composition with, its creditors, or
appointing or consenting to the appointment of a receiver or other custodian for
all or a substantial part of its property; or
(h) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the property of
the Company or any Subsidiary and such judgment, writ, or similar process shall
not be released, vacated or fully bonded within sixty (60) days after its issue
or levy; then, and in any such event, the Purchaser or any other holder of the
Notes may, by notice to the Company, declare the entire unpaid principal amount
of the Notes, all interest accrued and unpaid thereon and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the
Notes, all such accrued
-34-
interest and all such amounts shall become and be forthwith due and payable
(unless there shall have occurred an Event of Default under subsection 6.01(g)
in which case all such amounts shall automatically become due and payable),
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Company.
6.02. Annulment of Defaults. Section 6.01 is subject to the condition
---------------------
that, if at any time after the principal of any of the Notes shall have become
due and payable, and before any judgment or decree for the payment of the moneys
so due, or any portion thereof, shall have been entered, all arrears of interest
upon all the Notes and all other sums payable under the Notes and under this
Agreement (except the principal of the Notes which by such declaration shall
have become payable) shall have been duly paid, and every other default and
Event of Default shall have been made good or cured, then and in every such case
the holders of seventy-five percent (75%) or more in principal amount of all
Notes then outstanding may, by written instrument filed with the Company,
rescind and annul such declaration and its consequences; but no such rescission
or annulment shall extend to or affect any subsequent default or Event of
Default or impair any right consequent thereon.
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01. Certain Defined Terms. As used in this Agreement, the following
---------------------
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Agreement" means this Note and Warrant Purchase Agreement as from time to
time amended and in effect between the parties.
"Capital Resource Company Act" shall have the meaning assigned to that term
in Section 1.12.
"Code" shall have the meaning assigned to that term in Section 4.01(i).
"Company" means and shall include Peritus Software Services, Inc. and its
successors and assigns.
"Common Stock" includes the Company's Class A Voting Common Stock, no par
value per share, as authorized on the date of this Agreement, and any other
securities into which or for which any of such Class A Voting Common Stock may
be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Consolidated" and "consolidating" when used with reference to any term
defined herein mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles.
-35-
"Consolidated Net Earnings Available for Debt Service" means, for any
period, Consolidated Net Income for such period plus (a) interest paid or
accrued by the Company and its Subsidiaries with respect to all Indebtedness for
such period and (b) income and excess profit taxes for such period and all other
taxes for such period which are imposed on or measured by income after deduction
of interest charges.
"Consolidated Net Income (Loss)" means, for any period, the net income (or
net loss) of the Company and its Subsidiaries for such period, after all
expenses, taxes and other proper charges, determined in accordance with
generally accepted accounting principles eliminating (i) all intercompany items,
(ii) all earnings attributable to equity interests in Persons that are not
Subsidiaries unless actually received by the Company or its Subsidiaries, (iii)
all income arising from the forgiveness, adjustment or negotiated settlement of
any Indebtedness, and (iv) any increase or decrease of income arising from any
change in the method of accounting for any item from that employed in the
preparation of the financial statements attached hereto as Exhibit 3.08.
------------
"Consolidated Tangible Net Worth" means, at any dates, the sum of (a) the
par value of all of the stock of the Company issued and outstanding, (b) the
amount of any additional paid-in-capital and (c)
(i) the positive retained earnings, if any, of the Company
and its Subsidiaries, or
(ii) less, the amount of any deficit in the retained
earnings of the Company and its Subsidiaries
as the same appears on a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with generally accepted accounting
principles consistently applied as of such date, after eliminating all
intercompany items and all amounts properly attributable to (1) any write-up in
the book value of any asset resulting from a revaluation thereof after the date
of this Agreement; (2) the amount of any intangible assets including patents,
trademarks, unamortized debt discount and expense, goodwill, covenants and
agreements and the excess of the purchase price paid for assets or stock
acquired over the value assigned thereto on the books of the Company or of the
Subsidiary which shall have acquired the same; (3) earnings attributable to any
other Person unless actually received by the Company or its Subsidiaries; and
(4) changes in the method of accounting.
"Current Liabilities" means all liabilities of any corporation which would,
in accordance with generally accepted accounting principles consistently
applied, be classified as current liabilities of a corporation conducting a
business the same as or similar to that of such corporation, including, without
limitation, all rental payments due under leases required to be capitalized in
accordance with applicable Statements of Financial Accounting Standards and
fixed prepayments of, and sinking fund payments with respect to, Indebtedness
(including Indebtedness evidenced by the Notes), which payments are required to
be made within one year from the date of determination.
-36-
"Distribution" shall have the meaning assigned to that term in Section
4.02(g).
"ERISA" shall have the meaning assigned to that term in Section 3.10.
"Events of Default" shall have the meaning assigned to that term in Section
6.01.
"Exchange Act" means the Securities Exchange Act of 1934 or any similar
federal statute, and the rules and regulations of the Securities and Exchange
Commission (or of any other Federal Agency then administering the Exchange Act)
thereunder, all as the same shall be in effect at the time.
"Fair Market Value" shall have the meaning assigned to that term in Section
5A.03(a).
"Government Contract" shall have the meaning assigned to that in Section
3.14.
"Indebtedness" means all obligations, contingent and otherwise, which
should, in accordance with generally accepted accounting principles consistently
applied, be classified upon the obligor's balance sheet as liabilities, but in
any event including, without limitation, liabilities secured by any mortgage on
property owned or acquired subject to such mortgage, whether or not the
liability secured thereby shall have been assumed, and also including, without
limitation, (i) all guaranties, endorsements and other contingent obligations,
in respect of Indebtedness of others, whether or not the same are or should be
so reflected in said balance sheet, except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and (ii) the present value of any lease payments due
under leases required to be capitalized in accordance with applicable Statements
of Financial Accounting Standards, determined in accordance with applicable
Statements of Financial Accounting Standards.
"Interest Charges" means the interest expense of the Company and its
Subsidiaries on Indebtedness (including the current portion thereof).
"Notes" shall have the meaning assigned to that term in Section 1.01.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Purchaser" means and shall include not only the Massachusetts Capital
Resource Company but also any other holder or holders of any of the Notes or
Warrants.
"Registrable Shares" means and include the shares of Common Stock issued
and issuable upon exercise of the Warrants, excluding, however, any such shares
of Common Stock which: (a) have been registered under the Securities Act
pursuant to an effective
-37-
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them; or (b) have been publicly sold pursuant to
Rule 144 under the Securities Act or another exemption available under the
Securities Act; or (c) are saleable pursuant to Rule 144(k) under the Securities
Act.
"Securities Act" means the Securities Act of 1933 or any similar Federal
statute, and the rules and regulations of the Securities and Exchange Commission
(or of any other Federal agency then administering the Securities Act)
thereunder, all as the same shall be in effect at the time.
"Security Agreement" shall have the meaning assigned to that term in
Section 2.02(a).
"Senior Debt" shall have the meaning assigned to that term in Section
1.10(h).
"Subordinated Debt" means Indebtedness of the Company which has been
subordinated to the Notes in a manner approved in writing by the Purchaser.
"Subsidiary" or "Subsidiaries" means any corporation or trust of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time all of the outstanding shares of every class of such
corporation or trust other than directors' qualifying shares.
"Valuation Date" shall have the meaning assigned to that term in Section
5A.03(b).
"Warrants" shall have the meaning assigned to that term in Section 1.02.
7.02. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with generally accepted accounting
principles consistent with those applied in preparation of the financial
statements attached hereto as Exhibit 3.08, and all financial data submitted
------------
pursuant to this Agreement and all financial tests to be calculated in
accordance with this Agreement shall be prepared and calculated in accordance
with such principles.
ARTICLE VIII
MISCELLANEOUS
8.01. No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
the Purchaser, or any other holder of the Notes or Warrants in exercising any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
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8.02. Amendments, Waivers and Consents. Any provision in this Agreement,
--------------------------------
the Notes or the Warrants to the contrary notwithstanding, changes in or
additions to this Agreement may be made, and compliance with any covenant or
provision herein or therein set forth may be omitted or waived, if the Company
(i) shall, in the case of the Notes, obtain consent thereto in writing from the
holder or holders of at least seventy-five percent (75%) in principal amount of
all Notes then outstanding, and (ii) shall, in the case of the Warrants, obtain
the consent thereto in writing from the holder or holders of at least seventy-
five percent (75%) of the Common Stock issued and issuable upon exercise of the
Warrants; provided that no such consent shall be effective to reduce or to
--------
postpone the date fixed for the payment of the principal (including any required
redemption) or interest payable on any Note, without the consent of the holder
thereof, or to reduce the percentage of the Notes and Warrants the consent of
the holders of which is required under this Section. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. Written notice of any waiver or consent effected under
this subsection shall promptly be delivered by the Company to any holders who
did not execute the same.
8.03. Addresses for Notices, etc. All notices, requests, demands and
--------------------------
other communications provided for hereunder shall be in writing (including
telegraphic communication) and mailed or telegraphed or delivered to the
applicable party at the addresses indicated below:
If to the Company:
Peritus Software Services, Inc.
000 Xxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Attention: President
with a copy to:
Xxxxx X. Xxxx, Esquire
Xxxx and Xxxx
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
If to the Purchaser:
Payments should be mailed to:
Massachusetts Capital Resource Company
P. O. Box 3707
Xxxxxx, Xxxxxxxxxxxxx 00000
and all other deliveries and other communications made at
or sent to:
Massachusetts Capital Resource Company
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: President
-39-
If to any other holder of the Notes or Warrants: at such holder's address
for notice as set forth in the register maintained by the Company, or, as to
each of the foregoing, at such other address as shall be designated by such
Person in a written notice to the other party complying as to delivery with the
terms of this Section. All such notices, requests, demands and other
communications shall, when mailed or telegraphed, respectively, be effective
when deposited in the mails or delivered to the telegraph company, respectively,
addressed as aforesaid.
8.04. Costs, Expenses and Taxes. The Company agrees to pay on demand all
-------------------------
costs and expenses of the Purchaser in connection with the preparation,
execution and delivery of this Agreement, the Notes, the Warrants, the Security
Agreement and other instruments and documents to be delivered hereunder,
including the reasonable fees and out-of-pocket expenses of Messrs. Xxxxx,
Xxxxxxx & Xxxxxxxxx, special counsel for the Purchaser, with respect thereto, as
well as the reasonable fees and out-of-pocket expenses of legal counsel,
independent public accountants and other outside experts reasonably retained by
the Purchaser in connection with the amendment or enforcement of this Agreement,
the Notes, the Warrants, the Security Agreement and other instruments and
documents to be delivered hereunder or thereunder. In addition, the Company
shall pay any and all stamp and other taxes payable or determined to be payable
in connection with the execution and delivery of this Agreement, the Notes, the
Warrants, the Security Agreement and the other instruments and documents to be
delivered hereunder or thereunder and agrees to save the Purchaser harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes and filing fees.
8.05. Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the Company and the Purchaser and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Purchaser.
8.06. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in this Agreement, the Notes, the Warrants, the Security
Agreement or any other instrument or document delivered in connection herewith
or therewith, shall survive the execution and delivery hereof or thereof and the
making of the loans.
8.07. Prior Agreements. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
8.08. Severability. The invalidity or unenforceability of any provision
------------
hereof shall in no way affect the validity or enforceability of any other
provision.
8.09. Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the Commonwealth of Massachusetts.
8.10. Headings. Article, Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only
-40-
and shall not constitute a part of this Agreement for any other purpose.
8.11. Sealed Instrument. This Agreement is executed as an instrument
-----------------
under seal.
8.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
8.13. Further Assurances. From and after the date of this Agreement, upon
------------------
the request of the Purchaser, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Notes, the Warrants and the Security Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
PERITUS SOFTWARE SERVICES, INC.
By/s/ Xxxxxxx X. Xxxx,
-----------------------------------------------
Xxxxxxx X. Xxxx, President
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By/s/ Xxx Xxxxxx III,
-----------------------------------------------
Xxx Xxxxxx III, Vice President
-41-
PERITUS SOFTWARE SERVICES, INC.
000 XXXXXXX XXXX
XXXXXXXXX, XXXXXXXXXXXXX 00000
MAY 30, 1995
Massachusetts Capital Resource Company
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Gentlemen:
Reference is made to a certain Note and Warrant Purchase Agreement, dated
as of the date hereof, (the "Agreement") between Peritus Software Services,
Inc., a Massachusetts corporation (the "Company") and Massachusetts Capital
Resource Company (the "Purchaser"). Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Agreement.
This letter confirms to you that the Warrant, execrable for 125,000 shares
of Class A Voting Common Stock of the Company, issued to you this date pursuant
to the Agreement, represents, as of the date hereof, not less than four and
one-half percent (4-1/2%) of the outstanding capital stock of the Company,
calculated on a fully-diluted basis. If for any reason, it should be determined
that the Warrant represents less than said four and one-half percent (4-1/2%) on
the date hereof, the Company will immediately thereupon issue to you additional
common stock purchase warrants, exercisable for that number of shares of Class
A Voting Common stock necessary to bring your ownership of the Company, as of
the date hereof, to said four and one-half percent (4-1/2%). Such additional
warrants will be deemed to be issued pursuant to the Agreement and will be
entitled to all of the rights, benefits and obligations of the Agreement and the
Warrants issued thereunder, and such additional warrants will be deemed to be
issued as of the date hereof.
Very truly yours,
PERITUS SOFTWARE SERVICES, INC.
BY:/s/ Xxxxxxx X. Xxxx
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Xxxxxxx X. Xxxx, President
