<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
SKILLSOFT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 02-0496115
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
SKILLSOFT CORPORATION
20 INDUSTRIAL PARK DRIVE
NASHUA, NEW HAMPSHIRE 03062
(603) 324-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHARLES E. MORAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
20 INDUSTRIAL PARK DRIVE
NASHUA, NEW HAMPSHIRE 03062
(603) 324-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PATRICK J. RONDEAU, ESQ. LAWRENCE D. LEVIN, ESQ.
HALE AND DORR LLP KATTEN MUCHIN & ZAVIS
60 STATE STREET 525 WEST MONROE STREET, SUITE 1600
BOSTON, MASSACHUSETTS 02109 CHICAGO, ILLINOIS 60661
TELEPHONE: (617) 526-6000 TELEPHONE: (312) 902-5200
FACSIMILE: (617) 526-5000 FACSIMILE: (312) 902-1061
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement of
the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registrations statement
of the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value........................... $46,000,000 $12,788
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 9, 1999
Shares
SKILLSOFT
[Skillsoft Corp. LOGO] Common Stock
------------------
SkillSoft Corporation is selling shares of its common stock. Prior to this
offering, there has been no public market for the common stock. The initial
public offering price is expected to be between $ and $ per
share. We will make application to list our common stock on the Nasdaq National
Market under the symbol "SKIL."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN THIS COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SKILLSOFT
PUBLIC COMMISSIONS CORPORATION
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total........................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
The date of this prospectus is , 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 5
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 13
USE OF PROCEEDS....................... 13
DIVIDEND POLICY....................... 13
CAPITALIZATION........................ 14
DILUTION.............................. 15
SELECTED FINANCIAL DATA............... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 17
BUSINESS.............................. 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT............................ 39
CERTAIN TRANSACTIONS.................. 45
PRINCIPAL STOCKHOLDERS................ 46
DESCRIPTION OF CAPITAL STOCK.......... 48
SHARES ELIGIBLE FOR FUTURE SALE....... 50
UNDERWRITING.......................... 52
NOTICE TO CANADIAN RESIDENTS.......... 55
LEGAL MATTERS......................... 56
EXPERTS............................... 56
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 56
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
-------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
-------------------------
UNTIL (25 DAYS AFTER THE COMMENCEMENT OF THE
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in the common stock. You should read the entire prospectus
carefully. Unless otherwise specified, all information in this prospectus:
assumes no exercise of the underwriters' over-allotment option; reflects the
automatic conversion into common stock of all outstanding shares of preferred
stock that will occur upon the closing of this offering; and reflects the
reclassification of all outstanding shares of Class A common stock into common
stock that will occur prior to the closing of this offering.
We are a leading provider of Web-based training resources for Global 2000
companies that cover a variety of professional effectiveness and business topics
(commonly called "soft skills"). All of our courses and support tools have been
specifically designed to take advantage of the benefits offered by the internet
and the Web-based environments of our customers. This enables the users of our
products to access the material they need, with the specificity or breadth that
they require, anytime or anywhere that they may need it. Our customers receive
comprehensive training and support solutions for their employees, comprised of:
- our library of 126 courses, which encompasses a wide array of
professional effectiveness skills, such as management, leadership,
communication, project management and customer service, as well as
business topics such as finance, marketing, sales and strategy; and
- our Web-based online performance support tools, such as: Search-and-Learn
technology, which permits users to perform online searches of their
company's entire library of SkillSoft courses for a specific training
topic and to directly access only what they need; Online Mentoring, which
enables users to interact via e-mail with experts on a topic from any Web
connection; and Online Job Aids, which consist of approximately 380
topical refreshers and worksheets that are accessible online.
Our training resources are designed to increase the competitive strength
and productivity of organizations by improving employee performance with
immediate, universally accessible skill enhancers and job support tools. We
believe that our courses appeal to a broader range of employees than do courses
on information technology and other specialized topics, and assist in improving
employee retention by sending a positive message to employees that they are
valued. We market our courses primarily to Global 2000 companies and other large
businesses, governmental organizations and educational institutions. As of
August 31, 1999, we had 27 customers, including Adobe, Citibank, Dayton Hudson,
EMC, Ernst & Young, Fluor Daniel, GTE, IBM and National Car Rental.
According to TRAINING magazine, domestic corporations with over 100
employees budgeted approximately $60.7 billion for training in 1998 (including
the costs of internal training). There are a number of problems that make it
increasingly difficult for traditional classroom instruction to address the
training needs of many larger corporations, such as: travel costs; scheduling
difficulties; the opportunity costs of employees' time; and the inability of
classroom instruction to deliver training at the time and place an employee most
needs it -- such as right before the employee needs to apply the skill in the
workplace. As a result, companies are increasingly utilizing technology-based
training solutions to meet the educational needs of their employees.
To date, companies have typically relied upon CD-ROMs and other
technology-based forms of instruction to alleviate the shortcomings of
instructor-led training. We believe, however, that our
1
<PAGE> 5
Web-based training solution provides a number of significant advantages over
other technology-based training products including:
- more flexible and cost-efficient deployment of courses, enabling users to
access our training materials anywhere, anytime and only in the amounts
they need;
- online performance support tools, such as Search-and-Learn technology,
Online Mentoring and Online Job Aids, that enable users to tailor our
educational resources to their individual needs and pace and to obtain
specific, real-time assistance when they need it most;
- easier to use products that incorporate intuitive navigational concepts;
- improved means of product and user support through Web distribution; and
- increased ability for administrators to monitor use and effectiveness of
courses.
By applying new technological capabilities of the internet, such as search
engine architecture and hypertext links, we believe that our training resources
will transform corporate training from a distinct event, often off-site and
limited in scope, to a process of continuous learning and improvement that will
inherently maximize time utilization and employee effectiveness. Our courses and
support tools are developed using cross-platform technologies such as Java (a
programming language), HTML (a Web document formatting language) and JavaScript
(a scripting language). To reduce the risk of technical problems that would
limit access to our training materials, our products do not use
platform-dependent proprietary plug-in technologies. Our detailed Web-based
architecture enables users to perform intelligent searches of their company's
entire library of SkillSoft courses to identify relevant training materials on
specific topics. In addition, our products all employ advanced techniques for
compression and caching of text, graphics and audio to deliver high-quality
performance within the bandwidth limitations of most corporate intranets and the
internet.
Our objective is to be the leading global provider of high-quality
Web-based learning and performance support products. To achieve this objective,
we are continuing to expand our library of courses and to integrate new
Web-based technologies that address the needs of our customers and make our
products easier to use and more effective. We are also increasing our domestic
sales force and developing an international sales organization, while leveraging
our blue-chip client relationships to deepen our penetration within those
companies and in the market. Finally, we are continuing to increase our reseller
network and are expanding our strategic alliances with educational institutions
to further diversify our distribution channels.
OUR MANAGEMENT
Our executive management team, led by our President and Chief Executive
Officer, Charles E. Moran, has over 70 years of combined experience in the
technology and education industries. Mr. Moran's prior experience includes
National Education Training Group (NETg), where Mr. Moran served as President
and Chief Executive Officer from 1995 through 1997 following its sale to
Harcourt General, and Softdesk, Inc., a software company where Mr. Moran served
as Chief Operating Officer and Chief Financial Officer and helped lead its
initial public offering in February 1994. Other members of our management team
have prior experience at technology-based learning and other technology
companies such as CBT Group, Compaq, NETg and Motorola.
2
<PAGE> 6
OUR ADDRESS
Our principal executive offices are located at 20 Industrial Park Drive,
Nashua, New Hampshire 03062, and our telephone number at that location is (603)
324-3000. Our Web site is located at www.skillsoft.com. We were incorporated in
Delaware in October 1997. Unless the context otherwise requires, any reference
to "SkillSoft," "we," "our," and "us" in this prospectus refers to SkillSoft
Corporation and its subsidiaries.
SkillSoft has applied for federal registration of some of its trademarks,
including "NetPlay" and "NetUniversity." Other trademarks or service marks
appearing in this prospectus are the property of their respective holders.
THE OFFERING
Common stock offered.......... shares
Common stock to be outstanding
after the offering.......... shares
Use of proceeds............... For general corporate purposes, including
working capital. See "Use of Proceeds."
Proposed Nasdaq National
Market symbol................. SKIL
The number of shares of common stock to be outstanding after the offering
is based on the number of shares outstanding on September 1, 1999. This number
does not include 881,965 shares of common stock issuable upon the exercise of
stock options outstanding on September 1, 1999.
3
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS)
You should read this summary information with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes to those statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
INCORPORATION YEAR ENDED JULY 31,
(OCTOBER 15, 1997) JANUARY 31, ------------------
TO JANUARY 31, 1998 1999 1998 1999
------------------------- ---------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue..................... $ -- $ -- $ -- $ 1,088
Cost of revenue............. -- -- -- 254
----- ------- ------- -------
Gross profit................ -- -- -- 834
Total operating expenses.... 827 8,609 2,848 8,595
Interest income............. 3 336 120 119
----- ------- ------- -------
Net loss.................... $(824) $(8,273) $(2,728) $(7,642)
===== ======= ======= =======
</TABLE>
The following balance sheet table presents our balance sheet as of July 31,
1999 on an actual basis, on a pro forma basis giving effect to the conversion of
all outstanding convertible preferred stock into common stock, and on a pro
forma as adjusted basis giving effect to the sale of shares of
common stock offered hereby at an assumed initial public offering price of
$ per share, after deducting estimated underwriting discounts and
commissions and offering expenses.
<TABLE>
<CAPTION>
AS OF JULY 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEETS DATA:
Cash, cash equivalents, and short-term
investments...................................... $ 524 $ 524
Working capital..................................... 183 183
Total assets........................................ 2,558 2,558
Long-term liabilities............................... -- --
Convertible preferred stock......................... 16,951 --
Stockholders' equity................................ 630 630
</TABLE>
4
<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock.
RISKS RELATED TO OUR BUSINESS AND FINANCIAL PERFORMANCE
OUR LIMITED OPERATING HISTORY MAY IMPEDE YOUR ABILITY TO EVALUATE OUR BUSINESS
AND ITS FUTURE PROSPECTS
We commenced operations in January 1998 and commercially released our first
product in March 1999. One customer accounted for 51% of our limited revenue
through July 31, 1999. Your evaluation of the risks and uncertainties of our
business will be difficult because of our limited operating history and could
cause you to overpay for our common stock.
WE EXPECT TO INCUR SUBSTANTIAL LOSSES IN THE FUTURE AND MAY NOT BE ABLE TO
ACHIEVE OR MAINTAIN PROFITABILITY
Since we began operations in January 1998, we have incurred losses in every
fiscal period. Our accumulated deficit through July 31, 1999 was $16,738,888. We
expect to continue to incur substantial losses through at least the fiscal year
ending January 31, 2001, and we cannot be certain if or when we will become
profitable. If we do not become profitable within the timeframe expected by
investors, the market price of our common stock may be adversely affected. We
have generated relatively small amounts of revenue while increasing expenditures
in all areas in order to develop our business. We expect to continue to incur
significant expenses, particularly in sales and marketing, in an effort to
develop our business. As a result, we will need to generate significant revenue
to achieve and maintain profitability. Even if we do achieve profitability, we
cannot assure you that we can sustain or increase profitability on a quarterly
or annual basis in the future.
WE AND SEVERAL OF OUR EXECUTIVES ARE INVOLVED IN LITIGATION WHICH MAY BE COSTLY
AND DIVERT THE EFFORTS OF OUR MANAGEMENT
SkillSoft, several of our executives and one of our key employees are
involved in a lawsuit brought by National Education Training Group, Inc. (NETg),
the former employer of several of our executives. Named as defendants in the
lawsuit (as amended), in addition to SkillSoft, are Charles E. Moran, our
President and Chief Executive Officer, Jerald A. Nine, Jr., our Vice President,
Sales and Marketing, Mark A. Townsend, our Vice President, Product Development,
Lee A. Ritze, our Senior Director, Professional Marketing and Services, and
Warburg, Pincus Ventures, L.P., our largest investor. NETg alleges in substance
that the defendants breached their fiduciary obligations to NETg in connection
with the organization and operation of SkillSoft, misappropriated trade secrets
from NETg and intentionally interfered with NETg's business and employees. The
claims seek injunctive relief against SkillSoft and Messrs. Moran, Nine,
Townsend and Ritze demanding the return, and no future use by these defendants,
of the alleged trade secrets. The claims also seek compensatory damages in an
amount to be determined and punitive damages in excess of $10,000,000.
SkillSoft and the other defendants are vigorously defending themselves
against those allegations, and we believe that both SkillSoft and the other
defendants have meritorious defenses to the claims made in the lawsuit. However,
the lawsuit is still in discovery and we are not yet able to assess the
5
<PAGE> 9
potential liability of SkillSoft or the other defendants. Our failure to prevail
in this litigation could significantly affect our business and financial
performance as a result of:
- injunctive relief issued against SkillSoft and our officers, which could
restrict our ability to conduct our business;
- an adverse judgment against us for monetary damages;
- a settlement on unfavorable terms; or
- obligations we have to indemnify our employees for liabilities and
expenses they incur in connection with the lawsuit.
In addition, this litigation, regardless of its outcome, will continue to
result in significant expenses in defending the lawsuit and may divert the
efforts and attention of our management team from normal business operations.
See "Business -- Legal Proceedings."
OUR OPERATING RESULTS ARE DIFFICULT TO FORECAST AND MAY FLUCTUATE FROM QUARTER
TO QUARTER
As a result of our limited operating history, we do not have sufficient
historical financial data upon which to forecast quarterly revenue and operating
results. Our quarterly operating results may fluctuate as a result of a variety
of factors, including:
- the early stage of development of the market for Web-based education and
training, which makes it difficult for us to predict customer demand
accurately;
- the fact that we depend upon a relatively small number of customers for
our revenue, so that a delay in any particular customer order beyond a
fiscal quarter would have a significant impact on our revenue for that
quarter;
- our lengthy sales cycle;
- seasonality -- we expect our revenue and operating results will generally
be strongest in the fourth quarter of our fiscal year and weakest in the
first quarter; and
- the amount of hiring we do to support the anticipated growth of our
business.
Most of our expenses, such as rent and most employee compensation, do not
vary directly with revenue and are difficult to adjust in the short term. As a
result, if revenue for a particular quarter is below our expectations, we could
not proportionately reduce operating expenses for that quarter. Any such revenue
shortfall would therefore have a disproportionate effect on our expected
operating results for that quarter. In addition, we expect that a
disproportionate amount of our revenue each quarter will be recognized in the
final weeks of that quarter. As a result, any delays in receiving orders or
signing contracts may defer the associated revenue to the following quarter,
which would adversely affect our operating results for that quarter. If our
quarterly revenue or operating results fall below the expectations of investors
or securities analysts, the price of our common stock could fall substantially.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WEB-BASED EDUCATION AND TRAINING
PRODUCTS ARE NOT WIDELY ADOPTED
Our Web-based products represent a new and emerging approach for the
corporate soft skills education and training market. Our success depends
substantially upon the widespread adoption of Web-based products for education
and training. The failure of this market to develop, or a delay in the
development of this market -- whether due to technological, competitive or other
reasons -- would adversely affect our business and financial performance.
6
<PAGE> 10
INTENSE COMPETITION FROM OTHER EDUCATION AND TRAINING COMPANIES COULD ADVERSELY
AFFECT OUR BUSINESS AND FINANCIAL PERFORMANCE
The market for soft skills education and training is fragmented and highly
competitive. We expect that competition in this market will increase
substantially in the future for the following reasons:
- The expected growth of this market.
- The low barriers to entry. In particular, we do not believe that
proprietary technology is an important competitive factor in this market.
- Our course content providers are often not prohibited from developing
similar course content for other companies.
- The fragmented nature of the competitive landscape, including many small
competitors in the technology-based segment of the market.
One source of competition for our products is the internal educational and
technological personnel of our potential customers. If an organization decides
to use external providers to supply some or all of its training, our principal
sources of competition are:
- Providers of traditional classroom instruction. Many of the companies in
this category are attempting to adapt their courses to a
non-instructor-led format suitable for Web deployment.
- Providers of CD-ROM training courses.
- Suppliers of online information technology training courses that are
attempting to take advantage of their current technology and customer
base and expand into the soft skills market. Examples of competitors in
this group are Harcourt General (through subsidiaries such as Drake Beam
Morin, NETg and Knowledge Communications), CBT Group (through its
Knowledge Well and Tarragon businesses) and McGraw Hill (through its
Xebec subsidiary).
There can be no assurance that we can maintain or improve our competitive
position. Many of our current and potential competitors have longer operating
histories, greater name recognition and greater financial, technical, sales,
marketing, support and other resources than we do. Increased competition may
result in lost sales and may force us to lower prices, which would adversely
affect our business and financial performance.
WE RELY ON A LIMITED NUMBER OF THIRD PARTIES TO PROVIDE US WITH EDUCATIONAL
CONTENT FOR OUR COURSES, AND THEY MAY NOT BE ABLE TO DEVELOP NEW COURSES OR
ENHANCE EXISTING COURSES ON A TIMELY BASIS
To be competitive, we must develop and introduce on a timely basis new
course offerings which meet the needs of companies seeking to use our education
and training products. In addition, some of our courses may need to be updated
due to changes in educational doctrines or the evolving requirements of
educational institutions and certification organizations. We rely on independent
third parties to provide us with the educational content for our courses. Our
most important content provider is responsible for the development of more than
half of our courses. We do not have exclusive arrangements or long-term
contracts with any of these content providers, and some of our content providers
may compete with us. If one or more of our third-party content providers were to
stop working with us, we would have to rely on other parties to develop our
course content. We cannot predict whether new content or enhancements would be
available from reliable alternative sources on reasonable terms.
7
<PAGE> 11
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS
Our future success depends to a significant degree on the skills and
efforts of Charles E. Moran, our founder, Chairman of the Board, President and
Chief Executive Officer. The loss of the services of Mr. Moran could have a
material adverse effect on our business and financial performance. We also
depend on the ability of our other executive officers and members of senior
management to work effectively as a team. The loss of one or more of our
executive officers or senior management members could also have a material
adverse effect on our business and financial performance.
OUR FUTURE GROWTH DEPENDS ON SUCCESSFUL HIRING AND RETENTION, AND WE MAY BE
UNABLE TO HIRE AND RETAIN THE SKILLED PERSONNEL WE NEED TO SUCCEED
The growth of our business and revenue depends in large part upon our
ability to attract and retain sufficient numbers of highly skilled employees,
particularly sales and marketing personnel and product development personnel.
Qualified personnel are in great demand throughout the software industry. The
demand for qualified personnel is particularly acute in the New England area due
to the large number of software companies and the low unemployment rate in the
region. Our failure to attract and retain sufficient skilled personnel may limit
the rate at which we can grow or may otherwise harm our business and financial
performance.
THE LENGTHY SALES CYCLE FOR OUR PRODUCTS MAY MAKE OUR OPERATING RESULTS
UNPREDICTABLE AND VOLATILE
The period between our initial contact with a potential customer and the
purchase of our products by that customer typically ranges from three to 12
months. Factors which may contribute to our long sales cycle include:
- Our need to educate potential customers about the benefits of our
Web-based training products;
- Competitive evaluations by customers;
- The customers' internal budgeting and approval processes;
- The fact that some customers view training products as discretionary
spending, rather than purchases essential to their business; and
- The fact that we target Global 2000 companies, which often take longer to
make purchasing decisions due to the size and complexity of the
enterprise.
Our long sales cycle makes it difficult for us to predict if and when a
potential sale will actually occur. In addition, if a sale is delayed from the
quarter in which we expect it to occur, our operating results for that quarter
would be adversely affected.
OUR FINANCIAL PERFORMANCE DEPENDS IN PART ON OUR ABILITY TO DEVELOP BRAND
AWARENESS, AND WE MAY NOT BE SUCCESSFUL IN DOING SO
We believe that developing the SkillSoft brand within the corporate
training market is critical to achieving widespread acceptance of our products.
There are a number of factors which could prevent us from successfully
developing the SkillSoft brand, including the emergence of more successful
competitors, product performance problems or customer dissatisfaction, as well
as our failure to devote sufficient resources to marketing efforts.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH
Our failure to properly manage our recent and anticipated growth could have
a material adverse effect on the quality of our products, our ability to retain
key personnel and our business and financial
8
<PAGE> 12
performance. Our revenue increased 350% in the quarter ended July 31, 1999 from
the quarter ended April 30, 1999, the first quarter in which we generated
revenue. From January 1, 1999 to August 31, 1999, the number of our employees
increased from 45 to 87. This growth has strained, and our future growth may
continue to strain, our management, operational systems and other resources. To
manage our growth effectively, we must be able to maintain and enhance our
financial and accounting systems and controls, integrate new personnel and
manage expanded operations. There can be no assurance we will be able to do so.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO INTRODUCE NEW COURSES AND
TECHNOLOGIES ON A TIMELY BASIS OR IF NEW COURSES ARE UNSUCCESSFUL
Our future success will depend significantly on whether we are able to
introduce new courses and enhance our Web-based technologies as planned. While
we have new courses and technology features scheduled for commercial launch, we
cannot assure you that we will be successful in releasing them as scheduled, or
that they will meet with market acceptance. We may not have sufficient resources
to develop the new courses and technology enhancements necessary to maintain or
improve our competitive position.
DEMAND FOR OUR PRODUCTS MAY BE ESPECIALLY SUSCEPTIBLE TO ADVERSE ECONOMIC
CONDITIONS
Some companies may not view training products as critical to the success of
their business. If these companies experience disappointing operating results,
whether as a result of adverse economic conditions, competitive issues or other
factors, they may decrease or forego education and training expenditures before
limiting their other expenditures. As a result, our business and financial
performance may be damaged, more so than most companies, by adverse financial
conditions affecting our target customers or by a general weakening of the
economy.
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY
The market for Web-based education and training products is characterized
by rapidly changing technologies, frequent new product and service introductions
and evolving industry standards. The growth in the use of the Web and intense
competition in our industry exacerbate these market characteristics. Our future
success will depend on our ability to adapt to rapidly changing technologies and
customer demands by continually improving the features and performance of our
products.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS FAIL TO PERFORM
PROPERLY
Software products such as ours may contain undetected errors, or bugs,
which result in product failures or poor product performance. Our products may
be particularly susceptible to bugs or performance degradation because of the
emerging nature of Web-based technologies and the stress that may be placed on
our products by the full deployment of our products to thousands of users.
Product performance problems could result in lost or delayed revenue, loss of
market share, failure to achieve market acceptance, diversion of development
resources or injury to our reputation, any of which could have a material
adverse effect on our business and financial performance.
WE MAY NOT BE ABLE TO GENERATE ENOUGH REVENUE FROM OUR PLANNED INTERNATIONAL
EXPANSION TO OFFSET THE COSTS ASSOCIATED WITH ESTABLISHING AND MAINTAINING
FOREIGN OPERATIONS
A key component of our growth strategy is to expand our presence in foreign
markets. It will be costly to establish international operations, market our
products internationally and support and manage geographically dispersed
operations. Revenue from international operations is not likely to offset the
expense of establishing and maintaining these foreign operations in the
foreseeable future.
9
<PAGE> 13
OUR PLANNED INTERNATIONAL BUSINESS WILL EXPOSE US TO RISKS WE HAVE NOT HAD TO
FACE IN THE PAST
If we are successful in establishing international operations, we will have
to confront and manage a number of risks that we have not had to address in our
U.S. operations. These risks include:
- expenses associated with customizing products for foreign countries;
- challenges and costs inherent in managing geographically dispersed
operations;
- protectionist laws and business practices that favor local competitors;
- economic or political instability in some international markets;
- difficulties in finding and managing local resellers;
- multiple, conflicting and changing governmental laws and regulations; and
- foreign currency exchange rate fluctuations.
We cannot assure you that we will be successful in managing these risks.
FACTORS ADVERSELY AFFECTING THE USE OF THE INTERNET COULD HARM OUR BUSINESS
Some users access our courses over the public internet. Examples include
users who access courses from their company's intranet via remote access and
employees of companies that utilize our extranet hosting services and who
therefore access courses from SkillSoft-managed servers. Any factors that
adversely affect internet usage could disrupt the ability of those users to
access our courses, which would adversely effect customer satisfaction and
therefore our business. Among the factors that could disrupt internet usage are:
- slow access and download times;
- security concerns;
- network problems or service disruptions that prevent users from accessing
an internet server; and
- delays in, or disputes concerning, the development and adoption of
industry-wide internet standards and protocols.
ACQUISITIONS MAY DISRUPT OUR BUSINESS OR ADVERSELY AFFECT OUR FINANCIAL
PERFORMANCE
Although acquisitions are not currently an important component of our
business strategy, we may from time to time acquire businesses in the future. We
may be unable to integrate those businesses successfully into our own operations
or to operate those businesses profitably. Any acquisitions we may make could
result in difficulties in assimilating the technologies and personnel of the
acquired company, diversion of our management's time and attention and one-time
charges relating to the acquisition and/or ongoing amortization of acquired
goodwill and other intangible assets.
OUR BUSINESS COULD BE HURT BY FAILURES OF OUR PRODUCTS OR SYSTEMS, OR THOSE OF
OUR CUSTOMERS AND SUPPLIERS, AS A RESULT OF THE YEAR 2000 TECHNOLOGY PROBLEMS
Many existing software and computer systems do not properly recognize dates
after December 31, 1999. This Year 2000 problem could result in system failures,
erroneous results, data corruption and disruptions of operations. We may be
affected by Year 2000 problems relating to our products, our internal systems,
the systems of our vendors and our customers' systems, any of which could have a
material adverse effect on our business and financial performance.
10
<PAGE> 14
We believe that all of our products and our internal systems are Year 2000
compliant. However, because this is a unique problem that cannot be fully
assessed in advance of the Year 2000, it is possible that our products or our
internal systems may experience Year 2000 problems.
We have not conducted a Year 2000 compliance review of our suppliers or
resellers. Year 2000 problems experienced by those parties could adversely
affect our business and financial performance.
Year 2000 problems experienced by our customers and potential
customers -- whether in connection with their internal systems or in connection
with other products that operate in conjunction with our products -- could
result in delays in purchasing, or reduced resources available for purchasing,
products such as ours. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance" for detailed
information on our state of readiness, potential risks and contingency plans.
WE COULD BE SUBJECTED TO LEGAL ACTIONS BASED UPON THE CONTENT WE OBTAIN FROM
THIRD PARTIES
It is possible that we could become subject to legal actions based upon
claims that our course content infringes the rights of others or is erroneous.
This risk is exacerbated by the fact that our course content is provided by
third parties and that we exert limited control over our course content. Any
such claims, with or without merit, could subject us to costly litigation and
the diversion of our financial resources and management personnel. Further, if
those claims are successful, we may be required to alter the content, pay
financial damages or obtain content from others.
CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS INFRINGE UPON THEIR COPYRIGHTS OR
PATENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
If any of our products violate the proprietary rights of third parties, we
may be required to reengineer our products or to obtain licenses to continue
offering our products without substantial reengineering. Any efforts to
reengineer our products or obtain licenses from third parties may not be
successful and, in any case, could substantially increase our costs and have a
material adverse effect on our business and financial performance. We do not
conduct comprehensive patent searches to determine whether the technologies used
in our products infringe upon patents held by others. In addition, product
development is inherently uncertain in a rapidly evolving technological
environment in which there may be numerous patent applications pending, many of
which are confidential when filed, with regard to similar technologies.
RISKS ASSOCIATED WITH THIS OFFERING
THE PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY AND MAY BE EXTREMELY VOLATILE
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. After this offering, an
active trading market in our stock might not develop or continue. If you
purchase shares of our common stock in this offering, you will pay a price that
was negotiated by us with the representatives of the underwriters and not a
price that was established in a competitive market. See "Underwriting" for more
information regarding how the initial public offering price was determined.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly Web-related companies, have been extremely volatile and
have experienced fluctuations that have often been unrelated or disproportionate
to operating performance. These broad market fluctuations could adversely affect
the market price of our common stock.
11
<PAGE> 15
THE SIGNIFICANT CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK WILL LIMIT YOUR
ABILITY TO INFLUENCE CORPORATE ACTIONS
Immediately following this offering, Warburg, Pincus Ventures, L.P. will
own % of our outstanding common stock and, together with our executive
officers and directors, will beneficially own approximately % of our
outstanding common stock. As a result, those stockholders, if they act together,
will be able to control all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may have the effect of delaying, preventing or
deterring a change in control of SkillSoft, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part of a sale of
SkillSoft and might affect the market price of our common stock.
SOME PROVISIONS OF OUR CHARTER AND BY-LAWS MAY DELAY OR PREVENT TRANSACTIONS
THAT MANY STOCKHOLDERS MAY FAVOR
Some provisions of our certificate of incorporation and by-laws may
discourage, delay or prevent a merger or acquisition that our stockholders may
consider favorable, including transactions in which stockholders might otherwise
receive a premium for their shares. Some provisions of Delaware law may also
discourage, delay or prevent someone from acquiring us or merging with us. See
"Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter
and Bylaw Provisions" for detailed information on these provisions.
FUTURE SALES OF OUR COMMON STOCK BY EXISTING STOCKHOLDERS COULD DEPRESS THE
MARKET PRICE OF OUR COMMON STOCK
Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their common stock for the first
time. Sales of a substantial number of shares of common stock in the public
market, or the threat that substantial sales might occur, could cause the market
price of the common stock to decrease significantly. These factors could also
make it difficult for us to raise additional capital by selling stock. See
"Shares Eligible for Future Sale" for further details regarding the number of
shares eligible for public sale after this offering.
WE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS FROM THIS OFFERING AND MAY
NOT USE THEM IN A MANNER STOCKHOLDERS WOULD PREFER
We have not identified specific uses for most of the proceeds from this
offering, and we will have broad discretion in how we use them. In addition, we
are unable to determine how much of the proceeds will be used for any identified
purpose because circumstances regarding our planned uses of the proceeds may
change. You will not have the opportunity to evaluate the economic, financial or
other information on which we base our decisions on how to use the proceeds. The
failure of our management to apply the funds effectively could have a material
adverse effect on our business and financial performance.
12
<PAGE> 16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance, and are identified by terminology such as "may,"
"will," "should," "expects," "scheduled," "plans," "intends," "anticipates,"
"believes," "estimates," "potential," or "continue" or the negative of these
terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks and uncertainties. Actual events or results may
differ materially from those indicated by such forward-looking statements. In
evaluating those statements, you should consider the inherent risks and
uncertainties involved, including the risks outlined under "Risk Factors."
Although we believe that the expectations reflected in those
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. Moreover, neither we nor any
other person assumes responsibility for updating any of those forward-looking
statements after the date of this prospectus.
USE OF PROCEEDS
The net proceeds to SkillSoft from this sale of the shares
of common stock are estimated to be approximately $ at an assumed
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and offering expenses payable by
SkillSoft. If the underwriters' over-allotment option is exercised in full,
SkillSoft will receive an additional $ . SkillSoft intends to use the
proceeds for general corporate purposes, including expansion of its sales and
marketing capabilities, product development, expansion of its international
operations and working capital. Pending these uses, the proceeds of this
offering will be invested in short-term, interest-bearing, investment-grade
securities, certificates of deposit or direct or guaranteed obligations of the
United States.
DIVIDEND POLICY
SkillSoft has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
SkillSoft currently intends to retain future earnings, if any, to fund the
expansion and growth of its business. Payment of future dividends, if any, will
be at the discretion of SkillSoft's board of directors after taking into account
various factors, including SkillSoft's financial condition, operating results,
current and anticipated cash needs, plans for expansion and other factors that
the board deems relevant.
13
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of SkillSoft as of July
31, 1999. Our capitalization is presented:
- on an actual basis;
- on a pro forma basis giving effect to the automatic conversion of all
outstanding shares of preferred stock which will occur upon the closing
of this offering into common stock and the reclassification of all
outstanding shares of Class A common stock into common stock; and
- on a pro forma as adjusted basis to reflect the sale by SkillSoft of
shares of common stock offered hereby at an assumed initial public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and offering expenses.
This information should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1999
----------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
-------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Stockholders' equity:
Convertible preferred stock, $.001 par value
Series A -- 4,000,000 shares issued and
outstanding actual; none issued and
outstanding pro forma and pro forma as
adjusted................................... $ 6,958 $ --
Series B -- 4,761,905 shares issued and
outstanding actual; none issued and
outstanding pro forma and pro forma as
adjusted................................... 9,994 --
Class A common stock, 4,106,062 issued and
outstanding actual; none issued and
outstanding pro forma and pro forma as
adjusted...................................... 4
Common stock, $.001 par value; none issued and
outstanding actual; 12,867,967 shares issued
and outstanding pro forma; shares
issued and outstanding pro forma as
adjusted...................................... -- 13
Additional paid-in capital...................... 1,468 18,411
Deferred compensation........................... (716) (716)
Notes receivable from stockholders.............. (339) (339)
Accumulated deficit............................. (16,739) (16,739)
-------- ------------
Total stockholders' equity.................... 630 630
-------- ------------
Total capitalization.......................... $ 630 $ 630
======== ============
</TABLE>
14
<PAGE> 18
DILUTION
The pro forma net tangible book value of the common stock at July 31, 1999
was $630,390, or $.05 per share. Pro forma net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of common stock outstanding after giving effect to the
conversion of all shares of preferred stock. After giving effect to the sale of
shares of common stock offered hereby by SkillSoft at an assumed initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and offering expenses, SkillSoft's pro
forma net tangible book value as of July 31, 1999 would have been approximately
$ , or $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at July 31,
1999...................................................... .05
Increase attributable to the sale of common stock in this
offering.................................................. $
-------
Adjusted pro forma net tangible book value per share after
this offering.............................................
-------
Net tangible book value dilution per share to new investors
in this offering.......................................... $
=======
</TABLE>
If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after this offering would be $ per
share, the decrease in net tangible book value per share to existing
stockholders would be $ per share and the dilution to individuals who
purchase shares in this offering would be $ per share.
The following table summarizes, as of July 31, 1999, on the pro forma basis
described above, the total number of shares purchased, the consideration paid to
SkillSoft and the average price per share paid by the existing stockholders and
by new investors purchasing shares of common stock in this offering at an
assumed initial public offering price of $ per share before deducting the
estimated underwriting discounts and commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Shares owned by existing
stockholders...................... 12,867,967 % $17,718,562 % $ 1.38
Shares purchased in this offering...
---------- ----- ----------- -------
Total..................... 100.0% $ 100.0%
========== ===== =========== =======
</TABLE>
These tables do not give effect to the exercise of options to purchase
common stock outstanding at July 31, 1999. At July 31, 1999, there were 816,777
shares of common stock issuable upon exercise of outstanding stock options, at a
weighted average exercise price of $.29 per share. To the extent that these
options are exercised, there will be further dilution to new investors.
15
<PAGE> 19
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with SkillSoft's financial statements and notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," appearing elsewhere
in this prospectus. The statement of operations data for the period from
incorporation (October 15, 1997) to January 31, 1998 and for the fiscal year
ended January 31, 1999 and the balance sheet data as of January 31, 1998 and
January 31, 1999 are derived from, and are qualified by reference to, audited
financial statements included elsewhere in this prospectus. The statement of
operations data for the six months ended July 31, 1998 and 1999 and the balance
sheet data as of July 31, 1999 are derived from unaudited financial statements
of SkillSoft appearing elsewhere in this prospectus. The unaudited financial
statements have been prepared on the same basis as the audited financial
statements and, in the opinion of SkillSoft's management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The historical results
of operations are not necessarily indicative of the operating results to be
expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM
INCORPORATION SIX MONTHS ENDED
(OCTOBER 15, 1997) YEAR ENDED JULY 31,
TO JANUARY 31, JANUARY 31, ------------------------
1998 1999 1998 1999
------------------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................. $ -- $ -- $ -- $ 1,088
Cost of revenue..................... -- -- -- 254
-------- ---------- ---------- -----------
Gross profit...................... -- -- -- 834
Operating expenses:
Research and development.......... 178 4,117 1,224 3,743
Selling and marketing............. -- 1,671 179 2,849
General and administrative........ 649 2,821 1,445 1,965
Amortization of deferred
compensation................... -- -- -- 38
-------- ---------- ---------- -----------
Total operating
expenses............... 827 8,609 2,848 8,595
-------- ---------- ---------- -----------
Interest income..................... 3 336 120 119
-------- ---------- ---------- -----------
Net loss.................. $ (824) $ (8,273) $ (2,728) $ (7,642)
======== ========== ========== ===========
Net loss per share:
Basic and diluted................. $ (0.88) $ (2.70) $ (1.13) $ (1.91)
======== ========== ========== ===========
Basic and diluted weighted average
common shares outstanding...... 938,241 3,062,038 2,417,569 3,994,974
======== ========== ========== ===========
Pro forma net loss per share:
Pro forma basic and diluted....... $ (1.01) $ (0.61)
========== ===========
Pro forma basic and diluted
weighted average common shares
outstanding.................... 8,170,975 12,546,408
========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31,
------------------ AS OF JULY 31,
1998 1999 1999
------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEETS DATA:
Cash, cash equivalents and short-term investments....... $7,022 $3,965 $ 524
Working capital......................................... 6,319 2,726 183
Total assets............................................ 7,022 4,551 2,558
Long-term liabilities................................... -- -- --
Stockholders' equity.................................... 6,319 3,195 630
</TABLE>
16
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of SkillSoft should be read in conjunction with "Selected
Financial Data" and SkillSoft's financial statements and notes appearing
elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks and uncertainties. SkillSoft's
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, but not limited to,
those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are a leading provider of Web-based training resources for Global 2000
companies that cover a variety of professional effectiveness and business
topics. We commenced operations in January 1998 and until March 1999 devoted
substantially all of our efforts to product development, establishing a course
content developer and supplier base, building a direct sales and support
organization in the United States and a business application and network
infrastructure to support future growth. Since March 1999, we have devoted
substantial resources to sales and marketing activities as well as to continued
product development, and have recorded revenue, although we are not yet
profitable. We had an accumulated deficit of $16,738,888 as of July 31, 1999. We
expect to incur additional losses through at least the fiscal year ending
January 31, 2001, due primarily to substantial increases in sales and marketing
expenditures related to expanding our direct sales organization in the United
States, Europe and Australia and to increased personnel-related costs and
expenditures for travel, advertising, public relations, recruiting and other
activities. Research and development expenses will also contribute to losses
during this period as we continue to introduce new courses. Legal costs may also
increase due to the defense of a lawsuit filed against SkillSoft and certain of
our executives by NETg.
We derive revenue primarily from license agreements under which customers
license our courses for periods of one, two or three years. The pricing for
licenses varies based upon the number of course titles licensed by a customer,
the number of users within the customer's organization and the length of the
license agreement. For example, a three-year license for 25 courses for 5,000
users would cost approximately $106,250 per year. Our license agreements permit
customers to exchange courses, generally on the contract anniversary date.
Customers may amend the license agreements, for an additional fee, to gain
access to additional courses and/or to increase the size of the user base.
The annual license fee for the first year is generally billed in advance
and recognized as revenue at the time of delivery of products. In the event that
the customer does not initially specify the entire set of licensed courses to be
delivered or if some licensed courses are not immediately available for
delivery, the portion of the license revenue associated with those undelivered
courses is not recognized until those courses are delivered. License fees for
subsequent years of multi-year license agreements will be generally billed and
recognized on the anniversary date of the agreement, or if the customer
exchanges courses at the renewal date, upon delivery of the exchanged courses.
Revenue is recognized ratably over the license period if the customer is given
unlimited exchange privileges, exercisable other than on the contract
anniversaries, or if the customer licenses all courses currently available and
to be developed during a particular term. This license approach enables us to
build a backlog of future revenue streams. We also derive revenue from optional
complementary services such as extranet hosting and mentoring services, which
have been minimal to date. We may offer payment terms up to six months from the
initial shipment date or anniversary date for multi-year agreements.
Our backlog at any given time represents the amount of license fees which
are due to us under existing license agreements but which have not yet been
recognized as revenue. This amount is comprised of license fees attributable to
licensed courses that have not yet been selected by the
17
<PAGE> 21
customer or delivered by us and to future years of non-cancellable multi-year
license agreements. Our backlog as of July 31, 1999 was approximately
$2,200,000. Our backlog can vary based upon a number of factors, including the
timing of the execution of new license agreements, the timing of product
deliveries and the length of our license agreements. In particular, if customer
or competitive pressures cause us to change our business model from multi-year
license agreements to one-year license agreements, our backlog (although not
necessarily our revenue) would decrease. In addition, although we expect to
develop all licensed courses, and although our license agreements generally may
not be canceled by our customers unless we breach the agreement, there can be no
assurance that all of our backlog will be ultimately recognized as revenue.
Accordingly, our backlog as of any particular date should not be relied upon as
an indication of our actual revenue for any future period.
Cost of revenue includes the cost of materials (such as CD-ROM media),
packaging, duplication, custom library CD production, internet hosting services,
the cost of Online Mentoring services and certain infrastructure and occupancy
expenses. In the future, cost of revenue is expected to include content
royalties, although we intend to minimize the use of such arrangements. These
costs of revenue are generally recognized as incurred. Research and development
expenses consist primarily of salaries and benefits, certain infrastructure and
occupancy expenses, fees to consultants and course content development fees.
Software development costs are accounted for in accordance with SFAS No. 86,
which requires the capitalization of certain computer software development costs
incurred after technological feasibility is established. To date, development
costs after establishment of technological feasibility have been immaterial, and
all software development costs have been expensed as incurred. Selling and
marketing expenses consist primarily of salaries, commissions and benefits,
advertising and promotion, travel and certain infrastructure and occupancy
expenses. General and administrative expenses consist primarily of salaries and
benefits, consulting and service expenses, legal expenses and certain
infrastructure and occupancy expenses.
We recorded deferred compensation of $754,156 in the six months ended July
31, 1999, representing the difference between the exercise price of stock
options granted and the sale price of restricted common stock and the fair
market value of the underlying common stock at the date of grant. No such
deferred compensation was recorded for the fiscal year ended January 31, 1999.
The difference is recorded as a reduction of stockholders' equity and is being
amortized over the vesting period of the applicable options and restricted
common stock, which is typically four years. Of the total deferred compensation
amount, $38,345 had been amortized as of July 31, 1999. The amortization of
deferred compensation is recorded as an operating expense. We currently expect
to amortize the remaining $715,811 of deferred compensation as of July 31, 1999
in the periods indicated, as follows:
<TABLE>
<S> <C>
August 1, 1999 - January 31, 2000........................... $ 97,276
February 1, 2000 - January 31, 2001......................... $194,552
February 1, 2001 - January 31, 2002......................... $194,552
February 1, 2002 - January 31, 2003......................... $171,504
February 1, 2003 - January 31, 2004......................... $ 57,927
--------
$715,811
========
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 31, 1999 VERSUS SIX MONTHS ENDED JULY 31, 1998
Revenue for the six months ended July 31, 1999 was $1,088,224, as compared
to no revenue for the six months ended July 31, 1998, insofar as we did not
begin recognizing revenue until
18
<PAGE> 22
March 1999. This revenue was derived from customer license agreements closed and
products shipped under those agreements during the six months ended July 31,
1999.
Cost of revenue was $254,455, or 23% of revenue, for the six months ended
July 31, 1999, as compared to $0 for the six months ended July 31, 1998.
Research and development expenses were $3,743,121 for the six months ended
July 31, 1999, as compared to $1,224,356 for the six months ended July 31, 1998.
This increase was primarily due to increased personnel and course development
costs. We believe that a significant investment in research and development is
necessary to remain competitive, and we therefore expect research and
development expenses to continue to increase.
Selling and marketing expenses were $2,849,386 for the six months ended
July 31, 1999, as compared to $178,585 for the six months ended July 31, 1998.
This increase was primarily due to increased personnel, commissions, marketing
and travel costs. We believe that a significant investment in selling and
marketing to expand our distribution channel worldwide is required to remain
competitive, and we therefore expect selling and marketing expenses to continue
to increase.
General and administrative expenses were $1,964,517 for the six months
ended July 31, 1999, as compared to $1,444,876 for the six months ended July 31,
1998. This increase was primarily due to increased personnel costs and legal
fees incurred in connection with the NETg lawsuit. We anticipate that general
and administrative expense will increase due to increases in headcount in
management information services and accounting, additional expenses associated
with operating as a public company and the legal fees relating to the NETg
lawsuit.
Interest income was consistent from period to period and totalled $119,686
for the six months ended July 31, 1999, as compared to $120,308 for the six
months ended July 31, 1998.
YEAR ENDED JANUARY 31, 1999 VERSUS PERIOD FROM INCORPORATION (OCTOBER 15, 1997)
TO JANUARY 31, 1998
We commenced operations in January 1998 and had no revenue until March
1999. We did not incur significant operating expenses during the period ended
January 31, 1998.
Research and development expenses were $4,117,187 for the year ended
January 31, 1999. We had 18 research and development personnel and had not yet
completed development of any courses as of January 31, 1999.
Selling and marketing expenses were $1,671,225 for the year ended January
31, 1999. We had 36 selling and marketing personnel as of January 31, 1999.
General and administrative expenses were $2,820,646 for the year ended
January 31, 1999. We had nine general and administrative personnel as of January
31, 1999.
19
<PAGE> 23
QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------
APRIL 30, 1999 JULY 31, 1999
-------------- -------------
<S> <C> <C>
Revenue........................................ $ 197,822 $ 890,402
Cost of revenue................................ 126,779 127,676
----------- -----------
Gross profit................................. 71,043 762,726
----------- -----------
Operating expenses:
Research and development..................... 1,917,181 1,825,940
Selling and marketing........................ 1,281,092 1,568,294
General and administrative................... 1,063,685 900,832
Amortization of deferred compensation........ 9,874 28,471
----------- -----------
Total operating expenses..................... $ 4,271,832 $ 4,323,537
----------- -----------
Interest income................................ 64,478 55,208
----------- -----------
Net loss.................................. $(4,136,311) $(3,505,603)
=========== ===========
</TABLE>
Revenue increased from $197,822 for the quarter ended April 30, 1999 to
$890,402 for the quarter ended July 31, 1999, due primarily to 13 new customers.
Research and development expenses decreased from $1,917,181 for the quarter
ended April 30, 1999 to $1,825,940 for the quarter ended July 31, 1999,
primarily as a result of a reduction in the use of outside contractors and lower
recruiting expenses. General and administrative expenses decreased from
$1,063,685 for the quarter ended April 30, 1999 to $900,832 for the quarter
ended July 31, 1999 due primarily to lower legal fees incurred in connection
with the NETg lawsuit. Interest income decreased from $64,478 for the quarter
ended April 30, 1999 to $55,208 for the quarter ended July 31, 1999, due to
lower cash balances.
As a result of our limited operating history, we do not have sufficient
historical financial data upon which to forecast quarterly revenue and operating
results. Our quarterly operating results may fluctuate as a result of a variety
of factors. Please see "Risk Factors -- Our operating results are difficult to
forecast and may fluctuate from quarter to quarter" for a detailed description
of the factors that may affect our operating results.
LIQUIDITY AND CAPITAL RESOURCES
From inception, we have been funded primarily through preferred stock
financings with Warburg Pincus and other minority investors. The net proceeds
from these financings through July 31, 1999 were approximately $16,951,435. In
addition, we raised approximately $3,761,000 of net proceeds from a preferred
stock financing in August 1999.
We have a revolving line of credit with GreyRock Capital. The line of
credit permits borrowings of up to the lesser of $5,000,000 or the sum of 80% of
eligible accounts receivable and $1,000,000. Borrowings are secured by all of
our assets and bear interest at an annual rate of 4.875% over LIBOR. This
agreement expires on June 30, 2000 but is automatically renewable for additional
one-year terms. There are no outstanding borrowings under this line of credit.
Capital expenditures from inception through July 31, 1999 were $627,683.
These expenditures related primarily to the corporate office server network,
furniture and fixtures and the office telephone system.
20
<PAGE> 24
We had cash, cash equivalents and short-term investments totalling $524,002
as of July 31, 1999 and $2,619,707 as of August 31, 1999. We believe that the
net proceeds of this offering, together with our current cash, cash equivalents
and short-term investments and our credit facility with GreyRock Capital, will
be sufficient to satisfy our funding needs for at least the next 18 months.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers generally to the problems that some software and
computer systems may have in determining the correct century for the years after
1999. For example, software and computer systems with date-sensitive functions
that are not Year 2000 compliant may not be able to distinguish whether "00"
means 1900 or 2000, which may result in system failures or erroneous results.
We have defined "Year 2000 compliant" as the ability to:
- correctly handle date information after December 31, 1999;
- function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
- where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined, and predetermined
manner;
- if the date elements in interfaces and data storage specify the century,
store and provide output of date information in ways that are unambiguous
as to century; and
- recognize the year 2000 as a leap year.
We believe that we have four general areas of potential exposure with
respect to the Year 2000 problem:
- Our own products;
- Our internal information systems and equipment-related systems;
- The effects of compliance efforts of our suppliers, resellers and other
third parties; and
- Year 2000 problems experienced by our customers.
All of our current courses and software products are Year 2000 compliant.
Our courses are presented through the medium of Web browsers. Date information
is supplied to our programs by the Web browser and the user's operating system.
If the Web browser and the operating system are Year 2000 compliant and pass
correct, unambiguous date information to our software, we believe that our
software will process it correctly.
Since we began our business in January 1998, we have implemented and will
continue to implement enterprise-wide business software. This software is
represented by its vendors as being fully Year 2000 compliant. We have completed
our assessment of all critical business systems, and have found that where
software updates are required, they have been provided by the vendors and will
be installed and tested by the middle of October 1999. Because we purchased all
software and hardware we use during 1998 and 1999, we do not believe there will
be any material problems or costs relating to such software or hardware
associated with the Year 2000 problem.
The third aspect of our Year 2000 compliance analysis involves evaluating
the Year 2000 efforts of third parties, including suppliers, resellers and
producers of software which interact with our programs. To date, we have not
conducted a Year 2000 compliance review of our suppliers or resellers. We are
currently evaluating the need to conduct a complete review of our suppliers' and
21
<PAGE> 25
resellers' Year 2000 compliance issues. We are currently focusing all our Year
2000 efforts on our products and our internal business systems' Year 2000
readiness. If a supplier or reseller experiences a material Year 2000 compliance
problem, we plan to change suppliers and resellers. We cannot assure you that we
will be successful in finding alternatives and that our business will not incur
significant supplier transfer costs as well as lost revenue from our resellers.
With respect to third-party software which interacts with our programs, we have
identified several databases, Web servers and Web browsers which are Year 2000
compliant. If some of our customers do not use our programs with one of these
systems, it is possible that they may experience difficulties related to
third-party software, which may affect the performance of our products and lead
to adverse results such as an unusually high number of calls to our technical
support department or other unusual requests for information or assistance.
Responding to these requests may divert resources from pursuing our business
strategy. Furthermore, failure of third-party software or products used with our
products may reduce the value of our products, decrease or delay revenues,
tarnish our brand, give rise to breach of warranty claims or divert resources,
any of which could materially adversely affect our business, results of
operations and financial condition.
We have not evaluated and are not able to evaluate our customers' Year 2000
compliance strategies that might impact our business, such as an intranet
"lockdown" by any such customer, which could delay sales cycles or cause delays
in evaluations or decisions requiring the customer access to their intranet. Any
lockdowns could materially impact our revenue expectations during the periods in
which they occur.
We currently anticipate that the Year 2000 problem, insofar as it relates
to our products and internal systems, will not have a material adverse effect on
our financial position or results of our operations. We can give no assurance,
however, that the systems of other companies or government entities, on which we
rely for supplies, payments and future business, will be Year 2000 compliant or
that a failure to be Year 2000 compliant by another company or government entity
would not have a material adverse effect on our business. If third party
suppliers, service providers, resellers and customers are impacted by Year 2000
compliance problems, our business may suffer.
Our most likely worst case Year 2000 scenario would be that products and
software from third parties fail in the Year 2000, resulting in a decreased
demand for our products and damage to our brand. In the event of a Year 2000
failure of our products or systems, we would devote resources to correct it. We
believe we will be able to respond promptly to any failures that occur. The
costs of a response and the diversion of resources, however, could have a
material adverse effect on our business, results of operation and financial
condition.
Because our products are, and our internal systems are or are soon expected
to be, Year 2000 compliant, we have not formulated any contingency plans with
regard to Year 2000 compliance. Furthermore, we have not expended a material
amount of capital resources on Year 2000 compliance and do not anticipate future
expenditures to be material to our business, results of operations and financial
condition. We have not hired additional personnel to address Year 2000
compliance issues specifically, and we do not expect to do so.
22
<PAGE> 26
BUSINESS
COMPANY OVERVIEW
We are a leading provider of Web-based training resources for Global 2000
companies that cover a variety of professional effectiveness and business topics
(commonly called soft skills). All of our courses and support tools have been
specifically designed to take advantage of the benefits offered by the internet
and the Web-based environments of our customers. This enables the users of our
products to access the material they need, with the specificity or breadth that
they require, anytime or anywhere that they may need it. Our customers receive
comprehensive training and support solutions for their employees, comprised of:
- our library of 126 courses, which encompasses a wide array of
professional effectiveness skills, such as management, leadership,
communication, project management and customer service, as well as
business topics such as finance, marketing, sales and strategy; and
- our Web-based online performance support tools, such as: Search-and-Learn
technology, which permits users to perform online searches of their
company's entire library of SkillSoft courses for a specific training
topic and to directly access only what they need; Online Mentoring, which
enables users to interact via e-mail with experts on a topic from any Web
connection; and Online Job Aids, which consist of approximately 380
topical refreshers and outlines that are accessible online.
Our Web-based training solution offers several advantages over traditional
instructor-led training, such as the elimination of travel and scheduling
difficulties and a reduction in lost employee time. In addition, we provide a
number of significant advantages over other technology-based training products,
including:
- more flexible and cost-efficient deployment of courses, enabling users to
access our training materials anywhere, anytime and only in the amounts
they need;
- online performance support tools, such as Search-and-Learn technology,
Online Mentoring and Online Job Aids, that enable users to tailor our
educational resources to their individual needs and pace and to obtain
specific, real-time assistance when they need it;
- easier to use products that incorporate intuitive navigational concepts;
- improved means of product and user support through Web distribution; and
- increased ability for administrators to monitor use and effectiveness of
courses.
In addition, all of our courses are developed using our Instructional Design
model, which is based on proven concepts for performance-oriented learning and
is designed to maximize learner attention and retention through the use of rich
color and graphics, audio, behavioral modelling, role-playing and substantial
user interaction.
Our objective is to be the leading global provider of high-quality
Web-based learning and performance support products that enable business
organizations to achieve competitive advantage through superior enterprise-wide
knowledge and skills. We market our courses primarily to Global 2000 companies
and other large businesses, governmental organizations and educational
institutions. As of August 31, 1999, we had 27 customers, including Adobe,
Citibank, Dayton Hudson, EMC, Ernst & Young, Fluor Daniel, GTE, IBM and National
Car Rental. Many of our courses have received approvals from educational
institutions and certification organizations for college degree credit,
continuing education requirements or professional certification. In addition, we
have recently established a strategic relationship with The Wharton School of
the University of Pennsylvania under which The Wharton School will contribute to
our development of a series of courses focusing on financial statements.
23
<PAGE> 27
We are led by Charles Moran, our President and CEO, along with a team of
executives who together bring over 70 years of experience in the technology and
education industries. Our library has grown to 126 courses as of August 31,
1999, and we expect to offer more than 200 courses by the end of our fiscal
year. During the six months ended July 31, 1999, we generated $1,088,224 in
revenue and incurred a $7,641,914 net loss. Our backlog of unrecognized revenue
was approximately $2,200,000 as of July 31, 1999.
MARKET OPPORTUNITY
The increasing acceptance of the internet coupled with the proliferation of
Web browsers at work, at home and in laptop computers have dramatically changed
many businesses and business processes, creating exciting opportunities to serve
customers better, faster and more cost-effectively. We believe that new
technological capabilities of the internet, such as search engines and hypertext
links, coupled with dramatically increased connectivity for workers, have
created an opportunity to comprehensively change the way that organizations and
their employees view and implement training and education. By providing
real-time accessibility and user-focused specificity, we believe that Web-based
training will change the training and education process from a distinct
event -- often off-site and limited in scope -- to a process of continuous
learning for employees. Given the rising needs for training in increasingly
complex working environments, we believe that a properly designed and deployed
Web-based training resource can effectively address the needs of companies
seeking a comprehensive, enterprise-wide training solution.
The Corporate Training and Soft Skills Market
The corporate training market is large and growing. According to TRAINING
magazine, domestic corporations with over 100 employees budgeted approximately
$60.7 billion for training in 1998 (including the costs of internal training),
compared to $48.2 billion in 1993. A significant portion of the corporate
training market is comprised of soft skills training. We believe that the growth
in corporate training in general and soft skills training in particular is being
driven by:
- the evolution of our economy to a service-based and knowledge-based
economy, in which the skills of the workforce often represent the most
important corporate assets;
- the increasing recognition by businesses that it is imperative to
continually improve the skills of their employees in order to remain
competitive;
- the rapidly evolving business environment, which in turn necessitates
continual training and education of the employee base; and
- the increased competition in today's economy for skilled employees and
the recognition that effective training can be used to recruit and retain
employees.
The corporate training market is also characterized by an increasing use of
external providers to supplement or replace internal training efforts, in order
to obtain a more comprehensive and consistent training solution than is
available internally and in order to allow businesses to focus on their core
competencies. We believe that the corporate training industry is highly
fragmented, with a large number of smaller competitors but no dominant
competitor. Many companies within this industry serve niche markets or provide a
limited range of products and services that do not adequately address the
training needs of large organizations.
Technology-Based and Web-Based Training
Accompanying the trend toward increased training, largely through the use
of external training providers, has been an equally powerful trend toward the
use of technology-based training. Technology-based training includes CD-ROMs,
satellite broadcasts, client/server applications --
24
<PAGE> 28
which allow personal computers, called client computers, to exchange data with
more powerful computers, called servers, shared by multiple users -- and
Web-based training. Simba Information estimates that technology-based training
accounted for 24% of the corporate training market in 1998, up from 19% in 1997.
We believe the growth in technology-based training is being driven by the
increased recognition by many companies that traditional classroom instruction
is inadequate to meet their enterprise-wide training needs. Among the problems
of classroom instruction that can be addressed by traditional technology-based
training solutions such as CD-ROMs, satellite broadcasts and client/server
applications are travel costs, scheduling difficulties and the opportunity costs
of employees' time.
However, traditional technology-based training addresses only some of the
shortcomings of classroom instruction. We believe that Web-based training
products can dramatically alter the manner in which courses are deployed and
used and can provide a number of significant advantages over traditional
instructor-based and technology-based training. Web-based training products can
be deployed more flexibly and cost-effectively, enabling users to access the
material they need anytime or anywhere that they may need it in the exact amount
they demand. In addition, Web-based training products enable self-directed
learning, which refers to a training process in which individuals initiate their
own training, customize it to their own needs, and master material at their own
pace. Other advantages of Web-based training products are ease of use, improved
means of product and user support, and enhanced administrative capabilities. We
believe that a Web-based training solution, when properly designed and deployed,
can provide a comprehensive, enterprise-wide training solution that is more
flexible, effective and cost-efficient than classroom instruction and
traditional technology-based training. International Data Corporation estimates
that the Web-based component of information technology training will grow at an
85% compound annual rate from 1997 to 2002, and we believe that Web-based soft
skills training will also experience rapid growth.
THE SKILLSOFT ADVANTAGE
We address the enterprise-wide training needs of business organizations by
providing Web-based training resources that cover a variety of professional
effectiveness and business topics. We believe our courses and support tools
offer the following advantages:
Comprehensive Offering of High-Quality Products
We believe that a key advantage we offer our customers is the comprehensive
range of our training solutions. Our courses cover a wide range of professional
effectiveness and business expertise subjects, and we believe that our 126
courses, as of August 31, 1999, represent the largest number of consistently
designed, Web-deployable courses in the soft skills training industry. By
January 31, 2000, we expect to have over 200 courses in our library. We believe
that our courses appeal to a broader range of employees within an organization
than do courses on information technology and other specialized topics. In
addition, our courses are designed to be utilized without customization across a
wide range of industries, including technology, financial services,
telecommunications and manufacturing. See "-- Products."
Web-Based Performance Support
Our Web-based architecture and deployment strategy enables us to provide a
number of Web-enabled features designed to continuously support users in their
working environment, providing immediate, focused training solutions to improve
employee effectiveness. Our Web-based performance support tools provide
anywhere, anytime accessibility to the thousands of topical lessons available in
our course library, as well as task-related refreshers and online feedback from
experts -- all at the level of detail specified by the user. Our
Search-and-Learn technology permits users to perform keyword-based, intelligent
searches for topics across their company's entire library of licensed
25
<PAGE> 29
SkillSoft courses, in the same manner as one would use an internet search
engine. We also offer Online Mentoring, which enables a user to ask questions
relating to course materials or subject matter and receive e-mail responses from
experts in the field. See "-- Products -- Web-Based Performance Support."
[PICTURE OF JOB AID]
State-of-the-Art Web-Based Deployment Strategy
All of our courses are developed and deployed through an architecture built
entirely on new Web technologies and standards. We believe that our Web-based
architecture offers a number of advantages over conventional instructor-led
training as well as other technology-based training media, including:
- More effective deployment -- Users of our courses can access them via a
Web browser while at work, at home or while travelling, and can access
them whenever they desire. Our courses can be accessed online through
intranets or remotely through the internet, and may be downloaded -- in
whole or in part -- for localized playing on laptops or other independent
computers. Our deployment technologies are fully scalable to address the
expanding training needs of large organizations.
- Advanced Web technologies -- Our products incorporate emerging Web
technologies that we believe substantially improve product performance.
For example, by designing our products using cross-platform technologies
such as Java (a programming language), HTML (a Web document formatting
language) and JavaScript (a scripting language), our users avoid the need
for proprietary plug-in technologies, which reduces the risk of technical
problems and enhances network security. In addition, our products employ
advanced techniques for compression and caching of text, graphics and
audio to deliver high-quality performance within the bandwidth
limitations of most corporate intranets.
- Easier updating -- Because our courses generally reside on a centralized
server accessible by users connected to the network -- rather than
distributed on personal computers throughout the organization or on
multiple CD-ROMs -- updating or adding courses can be done more quickly
and cost-effectively. See "-- Products -- Web-Based Deployment."
Instructional Design Model
All SkillSoft courses are developed using our Instructional Design model,
which is based on proven concepts for performance-oriented learning. Our
Instructional Design model draws heavily from adult learning theory and
emphasizes motivation, topic relevance, self-management, problem solving,
mastery learning and role-playing. Users work at their own pace, learn by
observing and modeling the actions and attitudes of others, and take tests to
assess their mastery of the selected skills. The learner remains actively
engaged through interactive instruction, practice, reinforcement and feedback.
We believe that our consistent use of this model in designing our courses not
only improves the efficacy of our courses, but also makes the development of
additional courses more efficient. See "-- Products -- The SkillSoft
Instructional Design Model."
Customer-Focused Approach
We strive to maintain a customer-focused approach throughout all aspects of
our organization that is aimed at making it easy and productive for our
customers to do business with us. Our application engineers work with our
customers to help ensure optimal performance of our products on the customer's
network. We maintain an Advisory Board, which is comprised of senior executives
of several of our customers who meet with us two or three times per year to
discuss ways to improve
26
<PAGE> 30
our products. We also plan to introduce a broader Client Advisory Forum to
encourage direct customer input on our products, services and marketing plans. A
key component of our management philosophy is to enable all of our employees to
acquire SkillSoft common stock. We believe that this helps instill a "co-owner"
mindset in our employees and encourages a focus on customer satisfaction,
customer responsiveness, high-quality work, innovation, integrity, respect for
all our business partners and teamwork.
Experienced and Proven Management Team
Our executive management team, led by our President and Chief Executive
Officer, Charles E. Moran, has over 70 years of combined experience in the
technology and education industries. Mr. Moran's prior experience includes
National Education Training Group (NETg), where Mr. Moran served as President
and Chief Executive Officer from 1995 through 1997 following its sale to
Harcourt General, and Softdesk, Inc., a software company where Mr. Moran served
as Chief Operating Officer and Chief Financial Officer and helped lead its
initial public offering in February 1994. Other members of our management team
have prior experience at technology-based learning and other technology
companies such as CBT Group, Compaq, NETg and Motorola. We believe that our
management team and board of directors has proven itself to be exceptionally
skilled at responding quickly and effectively to changing market conditions,
which is especially important for technology-based companies offering Web-based
products or services. See "Management -- Executive Officers, Directors and Other
Key Employees."
SKILLSOFT GROWTH STRATEGY
Our objective is to be the leading global provider of high-quality
Web-based learning and performance support products that enable business
organizations to achieve competitive advantage through superior enterprise-wide
knowledge and skills. To achieve this objective, we are pursuing the following
strategies:
Expand Library of Courses
We plan to expand our library of courses to provide an even more
comprehensive educational solution for our customers. Our goal is to increase
the number of courses we offer from 126 as of August 31, 1999 to more than 200
by January 31, 2000, and to add over 200 new courses per year for the next
several years. We believe that continuing to expand and update our library will
both enhance our appeal to a greater number of customers within our target
market and generate additional revenue from existing customers through increases
in the number of licensed courses and/or licensed users within the organization.
In addition to introducing new courses within our current educational topics, we
are considering the development of courses specifically targeted at certain
industries, such as e-commerce, healthcare and financial services.
Enhance Web-Based Technologies
We believe that developing new technologies and incorporating emerging Web
technologies and standards will enable us to continue to increase our appeal to
a broader base of customers. We are focused on developing and incorporating new
technologies that address the needs of our customers and make our products
easier to use and more effective, which we believe will generate increased
revenue from both existing and new customers. Among the projects we have
targeted are:
- enhancing our Web-based performance support tools, including increasing
the number of our Online Job Aids from approximately 380 as of August 31,
1999 to our goal of over 700 by January 31, 2000;
- extending the interoperability of our courses with third-party learning
management software;
27
<PAGE> 31
- developing interfaces between administrative tools and third-party human
resource database software;
- continuing to improve course start-up times when used over low-speed
network connections; and
- developing new role play simulations and other interactive instructional
features.
Increase Domestic and International Sales and Marketing Efforts
We will continue to expand our direct sales force by hiring experienced
professionals with existing relationships in the Global 2000 market. We
currently have 31 sales professionals as well as one person focusing on
strategic relationships with educational institutions. We intend to continue to
aggressively expand our sales and marketing efforts by hiring additional
professionals to increase penetration of our target market of the largest 2000
companies around the world.
In addition to our domestic sales efforts, we also intend to expand into
selected international markets. To date, substantially all of our revenue has
been generated within the United States. We recently opened an office in the
United Kingdom, which will serve as the hub of our international operations, and
we plan to open an office in Australia by January 31, 2000. Although we expect
to employ a direct sales force in the United Kingdom and Australia, our strategy
is to address other international markets -- such as continental Europe and the
Far East -- primarily through resellers, with the goal of penetrating
English-speaking markets in those areas. We are in the process of developing a
version of some of our courses for use in the United Kingdom and other English-
speaking markets (such as Australia and South Africa) that is modified based on
the style of English spoken and local business customs in those markets.
Leverage and Expand Blue-Chip Client Relationships
We have secured multiple-year contracts with a number of blue-chip
companies in our target market. Our customers currently include Adobe, Citibank,
Dayton Hudson, EMC, Ernst & Young, Fluor Daniel, GTE, IBM and National Car
Rental. We believe that we have achieved this success both because of the high
quality of our product offerings and the relationships developed by our
executive officers and sales personnel with key decision-makers within these
organizations. We believe that those customer relationships provide us with
significant credibility in establishing ourselves as a leader in our market, and
we intend to use those relationships in marketing our products to other
potential customers. In addition, we plan to leverage our initial contacts and
success within specific departments of an organization, such as human resources
or sales, in seeking to increase the number of both licensed courses and
licensed users within other departments of that organization.
Expand Strategic Alliances
Our strategic partners are critical to our success because they permit us
to leverage our internal competencies with their expertise in complementary
areas. We have established strategic relationships with a number of resellers of
our products, including Asymetrix, KnowledgeSoft, Syscom and FirstClass Systems.
We have established and are developing reseller arrangements with internet
commerce sites focused on training and education, such as Headlight.com and
Fatbrain.com, and plan to develop reseller arrangements with internet portals
such as AltaVista. As of August 31, 1999, we had signed reseller agreements with
23 companies, and we plan to increase our reseller network significantly over
the next year.
In addition, our courses have received approvals from a number of
educational institutions and certification organizations for college degree
credit, continuing education requirements or professional certification. Many of
our courses are approved by the University of Phoenix for college degree credit,
28
<PAGE> 32
and all of our courses are approved by George Mason University for continuing
education credit. We expect that our courses will be approved by additional
educational institutions for degree credit and continuing education credit in
the future. Some of our sales and marketing courses are expected to be approved
later this year as study materials for new ISO certifications relating to sales
and marketing personnel, and we intend to develop additional business expertise
courses that adhere to the certification standards of other professional
certification organizations, such as the Project Management Institute and the
National Association of State Boards of Accountancy. In addition, we have
recently established a strategic relationship with The Wharton School of the
University of Pennsylvania under which The Wharton School will contribute to our
development of a series of courses focusing on financial statements.
PRODUCTS
Courses
Our comprehensive library of Web-based courses encompasses a wide array of
professional effectiveness skills and business topics. We offered 126 courses as
of August 31, 1999. Our courses are currently divided into two categories:
Professional Effectiveness and Business Expertise. Within these categories, we
offer courses on the following curricula:
<TABLE>
<CAPTION>
PROFESSIONAL EFFECTIVENESS BUSINESS EXPERTISE
- -------------------------- --------------------
<S> <C>
Management Finance
Leadership Marketing
Team Building Sales
Communication Strategic Planning
Personal Development Human Resources
Customer Service Knowledge Management
Project Management Operations
</TABLE>
Each of these curricula includes a number of series of courses. For
example, within the Project Management curriculum are series entitled
"Professional Project Management," "Advanced Risk Assessment for Project
Management" and "Advanced Project Scope, Time and Cost Management." Each series
is in turn comprised of three to eight individual courses, which are generally
two to three hours in length. Courses cover a number of different lessons, and
each lesson encompasses a number of different topics. All of our courses are
organized in a modular format, allowing users to take the entire course, or only
those portions of it that are relevant to them.
Our courses are currently available in English. We are in the process of
developing a localized version of some of our courses for use in the United
Kingdom and other English-speaking markets (such as Australia and South Africa).
The SkillSoft Instructional Design Model
All SkillSoft courses are developed using our Instructional Design model,
which is based on proven concepts for performance-oriented learning. Our
Instructional Design model draws heavily from adult learning theory and
emphasizes motivation, topic relevance, self-management, problem solving,
mastery learning and role-playing. We believe that our consistent use of this
model in designing our courses not only improves the efficacy of our courses,
but also makes the development of additional courses more efficient.
29
<PAGE> 33
The key components of our Instructional Design model are:
- Consistent, intuitive graphical user interface -- Our courses employ a
graphical user interface, consistent across all of our courses, that
emphasizes simplicity and clarity to help ensure that employees can take
our courses with minimal assistance. Our graphical user interface
incorporates intuitive navigational concepts and makes rich use of color,
illustrations and photographs.
- Variety of instructional media -- Our courses all include audio
instruction, which can increase attention and retention for many users.
Audio is especially important for our behavior modeling and RolePlay
simulations. Our courses also incorporate photographs, charts and other
graphics where appropriate to support and clarify the instruction and
focus attention on key training points.
- Practice and interaction -- Our courses engage users by requiring them to
perform practice exercises and providing them with feedback on their
performance. Our courses also include self-evaluation strategies that
engage the learner with the course content on a more individualized
level.
- Integrated assessment strategy -- Our testing strategy includes both
pre-assessment and post-assessment components. Pre-assessment features
are placed at the beginning of each lesson and are designed to quickly
identify the content the learner already knows. Post-assessment, or
mastery, occurs at the end of each lesson and evaluates the learner's
mastery of the objectives after instruction.
- Behavior modeling -- We believe that observing and modeling the
behaviors, skills and attitudes of others is a key ingredient in learning
soft skills such as leadership and customer service. Our courses present
examples, or "models," of behaviors and then ask users to rehearse these
new behaviors through practice exercises and case studies.
- RolePlay simulations -- Our innovative RolePlay feature, which we
incorporate into some courses where behavioral practice is particularly
relevant, presents users with realistic interactive simulations of
everyday workplace situations. Each simulation has multiple possible
outcomes, depending upon the user's responses.
- Accelerated Path -- This feature enables users of our courses to create
an individualized learning sequence through the course content based on
their demonstrated mastery of topic objectives. This helps ensure that
users do not spend time on topics for which they do not need training.
- Performance-oriented instruction -- Our courses focus on achieving
defined outcomes that are stated in terms of cognitive and affective
objectives. Instructional strategies are chosen to support achievement of
those objectives and assessments are used to evaluate learner achievement
of those objectives.
Web-Based Performance Support
Our products include a number of Web-enabled features to support users in
their learning. Examples include:
- Search-and-Learn technology, which adapts the concept of Web search
engines to our training resources. Using Search-and-Learn technology,
users can perform keyword-based, intelligent searches covering their
company's entire library of licensed SkillSoft courses. Our software
presents them with a list of the specific courses and topics that match
their identified training needs, enabling them to directly access that
information -- when and where they need it. This
30
<PAGE> 34
intelligent search capability is designed to locate the relevant sections
of course content rather than every mention of the word in any course.
- Online Job Aids, which are primers or sample documents that are
accessible online and can be used both to supplement the basic course
content or as "refresher" materials. Our customers can easily modify our
Online Job Aids using word processors and HTML editors to customize them
to meet the specific needs of the customer or its employees.
- Online Mentoring, which enables a user to ask questions relating to
either the course materials or the general subject matter of the course
and receive e-mail responses (generally within 24 hours) from experts in
the field.
- NetUniversity, which is a Web-based software application that permits
course users to access a wide variety of learning resources over the Web
and enables training administrators to control, monitor and generate
reports on the use of training courses -- either ours or those of other
vendors -- by employees throughout the enterprise.
Web-Based Deployment
Our products incorporate the latest Web technologies that we believe
substantially improve our product performance. Our courses and support tools are
developed using cross-platform technologies such as Java (a programming
language), HTML (a Web document formatting language) and JavaScript (a scripting
language). To reduce the risk of technical problems that would limit access to
our training materials, our products do not use platform-dependent proprietary
plug-in technologies. In addition, our products all employ advanced techniques
for compression and caching of text, graphics and audio to deliver high-quality
performance within the bandwidth limitations of most corporate intranets and the
internet. Our technology enables us to provide these advantages to all users,
not just those with the most powerful computers, quickest modems and highest
resolution monitors.
We have created a number of different options for customers to deploy our
courses throughout their organization, which are designed to address the needs
of a customer, regardless of its network structure or the location and network
access of its employees. Users of our courses can access them via a Web browser
while at work, at home or while traveling, and can access them whenever, and for
as long as, they desire. Our deployment technologies are fully scalable to
address the expanding training needs of large organizations. Deployment options
include:
- NetPlay, for users with browser access over a corporate intranet.
- NetDownload, which allows users to select either an entire course, or
desired portions of it, download it to their personal computer and take
the course off-line.
- NetPlay with Local Player, which permits users to download our course
player and access the licensed library from their local computers outside
of their corporate network. Local Player is designed to optimize delivery
for users with slower home internet connections while also enabling those
users to take advantage of our Web-based performance support tools.
- CD-ROMs, for users without access to a network.
We also offer extranet hosting services for companies who prefer to have users
access our courses from SkillSoft-managed servers rather than host the courses
on their own intranet. For many customers, this option can significantly
simplify and shorten the implementation process.
31
<PAGE> 35
Course Content and Development
We develop all of our courses in cooperation with outside organizations
that provide content and assemble the courses. We generally work with three to
six outside content providers. These organizations supply the content of our
courses based upon a jointly defined outline and assemble courses using our
course development toolkit and following our Instructional Design model. The
course development process is a collaborative exercise between SkillSoft and our
outside content providers, and the development of a series of six courses
typically takes 18 to 20 weeks.
Our course development toolkit is a key element of our business strategy.
By requiring that our content providers use our own toolkit rather than
commercially available authoring and development software, we ensure that all
our courses -- even those being developed by different content
providers -- incorporate our Instructional Design model, our "look-and-feel"
standards and the Web-based deployment features that we require in our courses.
This toolkit also enables our content providers to develop courses more quickly,
which improves our speed-to-market and lowers our course development costs.
Owning our course development toolkit technology enables us to enhance our
toolkit whenever and however we see fit as we respond to large customer
opportunities, potential competitive threats and changing market conditions.
Product Pricing
The pricing for our courses varies based upon the number of course titles
licensed by a customer, the number of users within the customer's organization
and the length of the license agreement (generally one, two or three years). Our
license agreements permit customers to exchange course titles, generally on the
contract anniversary date. Some of our features, such as Online Mentoring and
extranet hosting, are separately licensed for an additional fee.
SERVICES AND SUPPORT
We offer a broad range of support and services to our customers through our
professional services organization. We believe that providing a high level of
customer service and technical support is necessary to achieve rapid product
implementation, customer satisfaction and continued revenue growth.
Installation support. We have application engineers available to assist
customers with the installation of our products. These engineers test the
software and courses within the customer's network to ensure that they run
successfully both on the network and at employees' computers.
Implementation consulting. We employ implementation consultants to assist
customers in planning and implementing their training programs. These
individuals offer expertise in establishing training success criteria, planning
internal marketing programs and communicating with course users. These
implementation consultants work in close coordination with our application
engineers and sales representatives and are an important component of our
efforts to monitor and ensure customer satisfaction.
Technical support. We also provide telephone support to our customers
through our technical support engineers. They are available to assist customers
seven days per week between the hours of 6:00 a.m. and midnight, Eastern time.
Given the nature of our product offerings, these services and support do
not require significant resources. As of August 31, 1999, our professional
services organization consisted of eight persons.
32
<PAGE> 36
SALES AND MARKETING
We use a multi-prong sales strategy, consisting of
- a direct sales force for larger accounts;
- a telesales force for smaller accounts and lead generation; and
- resellers for mid-sized accounts and some international markets.
We believe this strategy enables us to focus our resources on the largest sales
opportunities, while simultaneously leveraging the contacts and employees of our
resellers to address opportunities that may not be cost-effective for us to
pursue directly.
As of August 31, 1999 we employed 26 sales professionals who have
individual sales quotas. Each of our account executives reports to a regional
sales vice president who is responsible for revenue growth and expense control
for his or her area. We presently employ two regional sales vice presidents in
the United States, a Director of Channel Sales and a Vice President/Managing
Director of International Sales and Marketing, each of whom reports to our Vice
President, Worldwide Sales and Marketing. We also have a sales executive focused
exclusively on educational institutions. Our sales professionals have
backgrounds at companies such as CBT Group, NETg, Xebec, PeopleSoft and
Ziff-Davis, as well as extensive contacts at the Global 2000 companies that we
target. Our goal is to increase the number of our quota-carrying sales persons
to approximately 50 by January 31, 2000. The sales process for an initial sale
to a Global 2000 customer typically ranges from three to twelve months and often
involves a coordinated effort among a number of groups within our organization.
We use sophisticated salesforce automation software to track each prospect
and customer through a sales cycle covering the following seven stages:
prospect, qualify, discovery, evaluation, proposal, negotiate and close. Each
step of the sales cycle has certain exit criteria that must be satisfied before
the prospect can progress to the next stage. Our senior sales executives meet
once each quarter with our regional sales vice presidents and their account
executives to assess their 90-day forecast, 120-day pipeline development and
longer term territory strategy. Our regional sales vice presidents and their
account executives typically meet weekly throughout the quarter to review
progress toward quarterly goals and longer term business objectives and for
coaching sessions.
Our products are resold by a number of leading education technology
vendors, including Asymetrix, KnowledgeSoft, Syscom and FirstClass Systems. We
have established and are developing reseller arrangements with internet commerce
sites focused on training and education, such as Headlight.com and Fatbrain.com,
and plan to develop reseller arrangements with internet portals such as
AltaVista. As of August 31, 1999, we had signed reseller agreements with 23
companies, and we plan to increase our reseller network significantly over the
next year.
To date, substantially all of our revenue has been generated within the
United States. We recently opened an office in the United Kingdom, which will
serve as the hub of our international operations, and we plan to open an office
in Australia by January 31, 2000. Although we expect to employ a direct sales
force in the United Kingdom and Australia, our strategy is to address other
international markets -- such as continental Europe and the Far
East -- primarily through resellers, with the goal of penetrating
English-speaking markets in those areas.
Our marketing organization utilizes a variety of programs to support our
sales team. As of August 31, 1999, our marketing organization consisted of six
employees. Our marketing programs include:
- telemarketing;
- product and strategy updates with industry analysts;
33
<PAGE> 37
- articles in the trade press;
- public relations activities and speaking engagements;
- printed promotional materials;
- promotional materials on our Web site;
- "roadshow" tours, seminars and trade shows; and
- monthly online discussions, using "chat room" technology, on subjects
such as the successful implementation of Web-based training programs.
CUSTOMERS
We market our courses primarily to Global 2000 companies and other large
businesses, governmental organizations and educational institutions. We believe
the subject matter of our courses has appeal across a wide range of business
sectors, including technology, financial services, telecommunications and
manufacturing. The following is a partial list of our customers:
<TABLE>
<S> <C>
Adobe Fluor Daniel
Avnet Fujitsu
BEA Systems General American Life
Citibank GTE
Dayton-Hudson Highmark BC/BS
Duke Energy IBM
EMC Kurt Salmon
Ernst & Young National Car Rental
Finova
</TABLE>
We have established and are developing reseller arrangements with internet
commerce sites focused on training and education and are developing reseller
arrangements with internet portals to reach markets beyond our target customer
base.
PRODUCT DEVELOPMENT
We devote substantial resources to the development of new and innovative
technologies that increase the effectiveness of our courses and that support
emerging Web standards. Our future success will depend in part on our ability to
anticipate and respond to changes in technologies and customer demands, enhance
the technological features of our courses, and develop and introduce new course
titles.
Our product development efforts are focused primarily on enhancing our
Web-based architecture and technologies and our Instructional Design model that
underlies the development and structure of all of our courses.
The content for our courses is supplied by outside parties working in
cooperation with our product development personnel. The course development
process is a collaborative exercise between SkillSoft and our outside content
providers, and the development of a series of six courses typically takes 18 to
20 weeks.
As of August 31, 1999, we had 21 employees engaged in product development
and production activities. We also utilize independent contractors for some
product development work. Our research and development expenditures for the
fiscal year ended January 31, 1999 and the six months ended
34
<PAGE> 38
July 31, 1999 were approximately $4,117,000 and $3,743,000, respectively. We
expect to continue to commit significant resources to research and development
in the future. To date, all research and development expenses have been expensed
as incurred.
COMPETITION
The market for soft skills education and training products is fragmented
and highly competitive. We expect that competition in this market will increase
substantially in the future for the following reasons:
- The expected growth of this market.
- The low barriers to entry. In particular, we do not believe that
proprietary technology is an important competitive factor in this market.
- Our course content providers are often not prohibited from developing
similar course content for other companies.
- The fragmented nature of the competitive landscape, including many small
competitors in the technology-based segment of the market.
One source of competition for our products is the internal educational and
technological personnel of our potential customers. If an organization decides
to use external providers to supply some or all of its training, our principal
sources of competition are:
- Providers of traditional classroom instruction. Many of the companies in
this category are attempting to adapt their courses to a
non-instructor-led format suitable for Web deployment.
- Providers of CD-ROM training courses.
- Suppliers of online information technology training courses that are
attempting to take advantage of their current technology and customer
base and expand into the soft skills market. Examples of competitors in
this group are Harcourt General (through subsidiaries such as Drake Beam
Morin, NETg and Knowledge Communications), CBT Group (through its
Knowledge Well and Tarragon businesses) and McGraw Hill (through its
Xebec subsidiary).
We believe that the principal competitive factors in the soft skills
training market include:
- the breadth and depth of the course content;
- performance support and other features of the training solution;
- adaptability, flexibility and scalability of the training products
offered;
- the deployment options offered to customers;
- customer service and support;
- price/value relationship;
- relationships with the customer; and
- corporate reputation.
Although we believe that we currently compete favorably with respect to
those factors, there can be no assurance that we can maintain or improve our
competitive position. Many of our current and potential competitors have longer
operating histories, greater name recognition and greater financial, technical,
sales, marketing, support and other resources than we do. Increased competition
may result
35
<PAGE> 39
in lost sales and may force us to lower prices, which would adversely affect our
business and financial performance.
PROPRIETARY RIGHTS
We do not believe that proprietary technology forms an important or
valuable part of our product offerings. We believe that the creative skills of
our personnel in developing new products and technologies, our ability to
develop and introduce new products rapidly and our responsiveness to customer
demands are more important than the availability of legal protections for
proprietary rights.
We attempt to avoid infringing upon intellectual property and proprietary
rights of third parties in our product development efforts. However, we do not
conduct patent searches to determine whether the technology used in our products
infringes patents held by third parties. In addition, product development is
inherently uncertain in a rapidly evolving technological environment in which
there may be numerous patent applications pending, many of which are
confidential when filed, with regard to similar technologies. If our products
violate third-party proprietary rights, we could be liable for substantial
damages. In addition, we may be required to reengineer our products or seek to
obtain licenses to continue offering the products, and there can be no assurance
that those efforts would be successful.
We currently license from third parties some technology and most course
content that we incorporate into our products. There can be no assurance that
this technology and content will continue to be available to us on commercially
reasonable terms, if at all. The loss of this technology or content could result
in delays in development and introduction of new products or product
enhancements, which could have a material adverse effect on our business and
financial performance. Moreover, we may face claims from others that the
third-party technology or content incorporated in our products violates
proprietary rights held by those claimants. We may also face claims for
indemnification from our customers resulting from infringement claims against
them based on the incorporation of third-party technology or content in our
products. Although we are generally indemnified against such claims, in some
cases the scope of that indemnification is limited. Even if we receive broad
indemnification, third party indemnitors are not always well capitalized and may
not be able to indemnify us in the event of infringement. In addition, such
claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources in addition to potential product
redevelopment costs and delays, all of which could materially adversely affect
our business.
We have trademark applications pending in the United States for some of our
trademarks, including NetPlay and NetUniversity.
EMPLOYEES
As of August 31, 1999, we had 87 employees, of whom 42 were engaged in
sales and marketing, 8 were engaged in customer service and support, 20 were
engaged in product development, one was engaged in product production and 16
were engaged in executive management, finance and administration. None of our
employees is subject to a collective bargaining agreement. We believe that our
relations with our employees are good.
FACILITIES
Our headquarters are located in approximately 10,000 square feet of office
space in Nashua, New Hampshire under a lease that expires in February 2001. We
also lease a sales office in the Dallas area and in the United Kingdom. We
expect to lease additional space within our headquarters building in October
1999. We believe that our existing facilities are adequate to meet our current
36
<PAGE> 40
needs and that suitable additional or substitute space will be available on
commercially reasonable terms when needed.
LEGAL PROCEEDINGS
SkillSoft, several of our executives, one of our key employees and our
largest investor are named as defendants in a lawsuit brought on or about May 6,
1998 in the United States District Court for the Northern District of Illinois
by National Education Training Group, Inc. (NETg), the former employer of
several of those individuals. Upon leaving the employment of NETg, and after
receiving letters from NETg expressing NETg's dissatisfaction with their
departure, these individuals filed an action on April 17, 1998 against NETg in
the Superior Court for Hillsborough County, State of New Hampshire, in which
SkillSoft and Messrs. Moran and Townsend sought a declaratory judgment that they
were free to hire NETg employees who had no enforceable post-employment covenant
not-to-compete and that they otherwise had not breached any duty to NETg. NETg
subsequently brought this lawsuit in the State of Illinois. The NETg lawsuit
alleges in substance that:
- Charles E. Moran, as the former President of NETg, breached his fiduciary
obligations to NETg by usurping NETg's corporate opportunities, by
commencing a rival business while still employed by NETg and by
soliciting NETg personnel to join his rival business while still employed
by NETg;
- Jerald A. Nine, as the former Vice President of Sales and Marketing of
NETg, breached his fiduciary duty to NETg by assisting Mr. Moran in the
creation, commencement and operation of the rival concern prior to Mr.
Nine's resignation from NETg, by assisting Mr. Moran in the usurpation of
corporate opportunities, by failing to inform his superiors at NETg of
Mr. Moran's plans to form a rival business and by otherwise failing to
use his best efforts on behalf of NETg while still employed there;
- SkillSoft, Mr. Moran, Mr. Nine, Mark A. Townsend and Lee A. Ritze
misappropriated trade secrets of NETg, and SkillSoft, Mr. Moran and Mr.
Nine intentionally interfered with NETg's "prospective economic
advantage"; and
- Warburg, Pincus Ventures, L.P., our largest investor, intentionally
interfered with NETg's employment relationships with "at-will" employees,
including Mr. Townsend, by offering those employees financial incentives
to leave NETg and join SkillSoft, engaged in unfair competition through
that same conduct and intentionally interfered with Mr. Moran's and Mr.
Nine's fiduciary duty to NETg.
The claims seek injunctive relief against SkillSoft and Messrs. Moran, Nine,
Townsend and Ritze demanding the return, and no future use by these defendants,
of the alleged trade secrets. The claims also seek compensatory damages in an
amount to be determined and punitive damages in excess of $10,000,000.
None of the defendants in this lawsuit were bound by written
non-competition or non-solicitation agreements with NETg. SkillSoft and the
other defendants are vigorously defending themselves against NETg's allegations,
and we believe that both SkillSoft and the other defendants have meritorious
defenses to the claims made in the lawsuit. However, the lawsuit is still in
discovery and we are not yet able to assess the potential liability of SkillSoft
or the other defendants. Our failure to prevail in this litigation could
significantly affect our business and financial performance as a result of:
- injunctive relief issued against SkillSoft and our officers, which could
restrict our ability to conduct our business;
- an adverse judgment against us for monetary damages;
- a settlement on unfavorable terms; or
37
<PAGE> 41
- obligations we have to indemnify our employees for liabilities and
expenses they incur in connection with the lawsuit.
In addition, this litigation, regardless of its outcome, will continue to result
in significant expenses in defending the lawsuit and may divert the efforts and
attention of our management team from normal business operations.
We are not a party to any other material legal proceedings.
38
<PAGE> 42
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The directors and executive officers of SkillSoft are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles E. Moran.......................... 44 Chairman of the Board, President and Chief
Executive Officer
Thomas J. McDonald........................ 49 Chief Financial Officer, Vice President,
Operations, Treasurer and Secretary
Mark A. Townsend.......................... 46 Vice President, Product Development
Jerald A. Nine, Jr. ...................... 41 Vice President, Worldwide Sales and Marketing
James Adkisson*........................... 51 Director
C. Samantha Chen*......................... 30 Director
William T. Coleman III**.................. 51 Director
Stewart K.P. Gross**...................... 40 Director
* Member of the audit committee.
** Member of the compensation committee.
Other key employees of SkillSoft include:
Dennis E. Brown........................... 47 Director of Marketing Communications
Eric W. Ertel............................. 37 Director of Software Development
David L. Eubanks.......................... 42 Vice President of Western Regional Sales
Kristina E. Johnson....................... 36 Director of Creative Design
Charles E. King........................... 42 Vice President of Eastern Regional Sales
Steven A. Lichtman........................ 43 Director of Channel Sales
Lee A. Ritze.............................. 46 Senior Director of Marketing and Professional
Services
Sally H. Welsh............................ 48 Director of Instructional Design
Kevin T. Young............................ 46 Vice President/Managing Director of International
Sales and Marketing
</TABLE>
Charles E. Moran is a founder of SkillSoft and has served as its Chairman
of the Board, President and Chief Executive Officer since January 1998. Before
founding SkillSoft, Mr. Moran served as President and Chief Executive Officer of
National Education Training Group, Inc. (NETg), a computer-based information
technology training company, from May 1995 until November 1997. From July 1994
to May 1995, Mr. Moran was an independent consultant. From October 1993 until
July 1994, Mr. Moran served as Chief Financial Officer and Chief Operating
officer of Softdesk, Inc., a developer of computer-assisted design and drafting
software. Mr. Moran is also a director of Workgroup Technology Corporation.
Thomas J. McDonald is a founder of SkillSoft and has served as its Chief
Financial Officer and Vice President of Operations since February 1998. From
September 1994 to November 1997, Mr. McDonald served as Chief Financial Officer
and Vice President of Operations at NETg. From February 1990 to August 1994, Mr.
McDonald served as Chief Financial Officer and Vice President of Bear
Automotive. He previously held senior financial and operational positions with
SPX Corporation, U.S. Industries and Cenco, Inc.
39
<PAGE> 43
Mark A. Townsend is a founder of SkillSoft and has served as its Vice
President of Product Development since January 1998. From February 1996 to
December 1997, Mr. Townsend served as Vice President of Advanced Technology at
NETg. From March 1994 until February 1996, Mr. Townsend served as Vice President
of Engineering at Sytron Corporation, a software data storage management
company.
Jerald A. Nine, Jr. is a founder of SkillSoft and has served as its Vice
President of Worldwide Sales and Marketing since April 1998. From July 1995 to
February 1998, Mr. Nine served as the Vice President of Sales and Marketing at
NETg. From September 1992 until July 1995, Mr. Nine served as Vice President of
Sales and Marketing at Sytron Corporation.
James Adkisson has served as director of SkillSoft since January 1998.
Since 1992, Mr. Adkisson has been a Partner at Growth Resources International,
an investment advisory services company.
C. Samantha Chen has served as director of SkillSoft since June 1999. Ms.
Chen has been an associate at E.M. Warburg, Pincus & Co., LLC since September
1997. From April 1992 to June 1995, Ms. Chen served as an analyst at Bessemer
Venture Partners. From September 1995 to June 1997, Ms. Chen attended the
Stanford Graduate School of Business, where she obtained her MBA.
William T. Coleman III has served as director of SkillSoft since August
1999. Since January 1995, Mr. Coleman has served as Chairman of the Board and
Chief Executive Officer of BEA Systems Inc., a provider of software solutions
for enterprise e-commerce applications. From December 1985 to January 1995, Mr.
Coleman served as Vice President and General Manager and Vice President of
Software at Sun Microsystems. Mr. Coleman is also a director of Portal Software,
Inc.
Stewart K.P. Gross has served as director of SkillSoft since January 1998.
Mr. Gross is a Managing Director of E.M. Warburg, Pincus & Co., LLC, where he
has been employed since July 1987. Mr. Gross is a director of BEA Systems, Inc.,
IA Corporation and several privately held companies.
In accordance with the terms of SkillSoft's certificate of incorporation,
the terms of office of the members of the board of directors are divided into
three classes. Messrs. Moran and Gross serve as Class I Directors (whose term
expires in 2000), Ms. Chen and Mr. Coleman serve as Class II Directors (whose
term expires in 2001) and Mr. Adkisson serves as a Class III Director (whose
term expires in 2002). At each annual meeting of stockholders, the successors to
directors whose terms then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election.
Additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the total number of directors. The
classification of the board of directors may have the effect of delaying or
preventing changes in control or management of SkillSoft.
Each officer is appointed by, and serves at the discretion of, the board of
directors. There are no family relationships among any of the directors,
officers or key employees of SkillSoft.
COMMITTEES OF THE BOARD OF DIRECTORS
The SkillSoft compensation committee consists of Messrs. Coleman and Gross.
It reviews and evaluates the salaries and incentive compensation of management
and key employees of SkillSoft and makes recommendations concerning these
matters to the board of directors. The SkillSoft compensation committee also
administers SkillSoft's stock option plans.
The SkillSoft audit committee consists of Mr. Adkisson and Ms. Chen. It
reviews the results and scope of audits and other services provided by
SkillSoft's independent public accountants and reviews SkillSoft's system of
internal accounting and financial controls. The SkillSoft audit committee
40
<PAGE> 44
also reviews such other matters with respect to the accounting, auditing and
financial reporting practices and procedures of SkillSoft as it may find
appropriate or may be brought to its attention.
DIRECTOR COMPENSATION
Non-employee directors will be reimbursed for their reasonable
out-of-pocket expenses incurred in attending meetings of the board of directors.
No director will receive cash compensation for services rendered as a director.
Non-employee directors (other than those currently serving on the board of
directors) will also eligible for participation in SkillSoft's 1999 Non-Employee
Director Stock Option Plan. See "Management -- Stock Plans."
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the total compensation
paid or accrued for the year ended January 31, 1999 for each of the executive
officers of SkillSoft.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------
AWARDS
ANNUAL COMPENSATION ---------------
-------------------- RESTRICTED
NAME AND PRINCIPAL POSITION SALARY BONUS STOCK AWARDS(1)
- --------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Charles E. Moran, Chairman of the Board, President
and Chief Executive Officer..................... $250,000 -- $ --
Thomas J. McDonald, Chief Financial Officer, Vice
President, Operations and Treasurer............. $135,000 $100,000 $ --
Mark A. Townsend, Vice President, Product
Development..................................... $145,000 -- $ --
Jerald A. Nine, Jr., Vice President Worldwide
Sales and Marketing(2).......................... $117,115 -- $ --
</TABLE>
- -------------------------
(1) Long term compensation consisted of restricted stock granted under
SkillSoft's 1998 Stock Incentive Plan and vests in 36 equal monthly
installments commencing the month following the date of grant. Amounts shown
above represent the value of the restricted stock award, based on the fair
market value of the common stock on the date of grant less the purchase
price paid. The number of shares of restricted stock granted to Messrs.
Moran, McDonald, Nine and Townsend in the fiscal year ended January 31, 1999
was 0; 300,000; 700,000 and 600,000, respectively. The number of shares of
restricted stock held by each of the executive officers as of January 31,
1999 and its value as of January 31, 1999, based on a fair market value of
$.175 per share, was as follows: Mr. Moran: none; Mr. McDonald: 300,000
shares, $52,500; Mr. Townsend: 600,000 shares, $105,000; and Mr. Nine:
700,000 shares, $122,500.
(2) Mr. Nine joined SkillSoft in April 1998 and thus received compensation for
only part of the fiscal year.
OPTION GRANTS DURING FISCAL YEAR
SkillSoft did not grant any options or stock appreciation rights during the
fiscal year ended January 31, 1999 to any of its executive officers.
41
<PAGE> 45
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
None of the executive officers of SkillSoft exercised any options to
purchase stock of SkillSoft during the fiscal year ended January 31, 1999 or
held any such options as of January 31, 1999.
EMPLOYMENT AGREEMENTS
SkillSoft is a party to an employment agreement with Mr. Moran entered into
in December 1997. Under the terms of this employment agreement, Mr. Moran is
entitled to receive an annual base salary of $250,000, which may be increased in
accordance with SkillSoft's regular salary review practices. Mr. Moran is also
entitled to be paid a signing bonus of $600,000 upon the earliest of (1) the end
of the second consecutive quarter that SkillSoft achieves quarterly revenue in
excess of $1,000,000, (2) the fourth anniversary of the date of the employment
agreement or (3) a sale of SkillSoft following which SkillSoft's stockholders
own less than 50% of the equity securities of the surviving company. Mr. Moran
is also entitled to participate in any bonus plan that SkillSoft may establish
for its senior executives. Either SkillSoft or Mr. Moran may terminate the
employment agreement at will for any reason, upon three months' prior notice in
the case of termination by SkillSoft, or upon two months' prior notice in the
case of termination by Mr. Moran. If SkillSoft terminates Mr. Moran's employment
without cause, or if Mr. Moran terminates his employment for good reason (as
defined in the employment agreement), then SkillSoft will be required to pay Mr.
Moran his base salary and benefits for a period of twelve months following
termination. In addition, in the event of such a termination, Mr. Moran's stock
options will continue to vest and be exercisable if he performs consulting
services for SkillSoft of up to ten hours per month during the twelve months
following termination.
SkillSoft is a party to an employment agreement with Mr. McDonald, dated
February 2, 1998. Under the terms of the employment agreement, Mr. McDonald is
entitled to receive an annual base salary of $135,000, which may be increased in
accordance with SkillSoft's regular salary review practices. In addition,
SkillSoft agreed to sell Mr. McDonald 300,000 shares of its restricted common
stock, which vest in 36 equal monthly installments. Mr. McDonald is entitled to
participate in any bonus plan that SkillSoft may establish for its senior
executives. Either SkillSoft or Mr. McDonald may terminate the employment
agreement at will for any reason, upon three months' prior notice in the case of
termination by SkillSoft, or upon two months' prior notice in the case of
termination by Mr. McDonald. If SkillSoft terminates Mr. McDonald's employment
without cause, or if Mr. McDonald terminates his employment for good reason (as
defined in the employment agreement), then SkillSoft will be required to pay Mr.
McDonald his base salary and benefits for a period of six months following
termination. In addition, in the event of such a termination, Mr. McDonald's
stock options will continue to vest and be exercisable if he performs consulting
services for SkillSoft of up to ten hours per week during the six months
following termination.
SkillSoft is also a party to employment agreements with Messrs. Townsend
and Nine, dated January 12, 1998 and April 9, 1998, respectively. Under these
employment agreements, Messrs. Nine and Townsend are each entitled to receive a
base salary of $145,000, which may be increased in accordance with SkillSoft's
regular salary review practices. In addition, SkillSoft agreed to sell Messrs.
Townsend and Nine 600,000 and 700,000 shares, respectively, of its restricted
common stock, which vest in 36 equal monthly installments. Messrs. Townsend and
Nine are also entitled to participate in any bonus plans that SkillSoft may
establish for its senior executives. These employment agreements provide for the
same termination provisions and severance benefits as Mr. McDonald.
42
<PAGE> 46
STOCK PLANS
1998 Stock Incentive Plan
General. SkillSoft's 1998 Stock Incentive Plan provides for the grant of
incentive stock options, nonstatutory stock options, restricted stock awards and
other awards. The Incentive Plan authorizes the issuance of a maximum of
4,690,000 shares of common stock. As of September 1, 1999, 2,231,874 shares had
been issued under the Incentive Plan and 881,965 shares were subject to
outstanding options under the Incentive Plan. The Incentive Plan is administered
by the board of directors and the compensation committee.
Eligibility to Receive Awards. Employees, directors and consultants of
SkillSoft and its subsidiaries are eligible to be granted awards under the
Incentive Plan. Under present law, however, incentive stock options qualifying
under Section 422 of the Internal Revenue Code may only be granted to employees.
Incentive Stock Options and Nonstatutory Stock Options. Stock options
entitle the holder to purchase a specified number of shares of common stock at a
specified option price, subject to the other terms and conditions contained in
the option grant. SkillSoft may grant options at an exercise price equal to or
greater than 85% of the fair market value of the common stock on the date of
grant. Under present law, however, incentive stock options and options intended
to qualify as performance-based compensation under Section 162(m) of the
Internal Revenue Code may not be granted at an exercise price less than the fair
market value of the common stock on the date of grant (or less than 110% of the
fair market value in the case of incentive stock options granted to optionees
holding more than 10% of the voting power of SkillSoft). Options may not be
granted for a term in excess of ten years. The board of directors or the
compensation committee determines:
- the number of shares subject to each option granted,
- the exercise price of the option,
- the vesting schedule of the option (generally over four years),
- the duration of the option (generally ten years, subject to earlier
termination in the event of the termination of the optionee's employment
or consulting arrangement), and
- the manner of payment of the exercise price of the option (including
payment by cash, check or promissory note or through a "cashless
exercise").
Restricted Stock Awards. Restricted stock awards entitle recipients to
acquire shares of common stock, subject to the right of SkillSoft to repurchase
all or part of such shares from the recipient in the event of the termination of
the recipient's employment or consulting arrangement prior to the end of the
vesting period for such award or if other conditions specified in the award are
not satisfied. The board of directors or the compensation committee determines:
- the number of shares subject to each restricted stock award granted,
- the purchase price of the restricted stock award,
- the vesting schedule of the restricted stock award (generally over three
years), and
- the manner of payment of the purchase price for the restricted stock
award (including payment by cash, check or promissory note).
Acquisition of SkillSoft. In the event of an acquisition of SkillSoft,
outstanding options, restricted stock and other awards under the Incentive Plan
will either be assumed by the acquiring company, accelerated in full or
terminated.
43
<PAGE> 47
1999 Non-Employee Director Stock Option Plan
In September 1999, SkillSoft's board of directors adopted and SkillSoft's
stockholders approved the 1999 Non-Employee Director Stock Option Plan. The
Director Plan authorizes the grant of options to purchase up to 240,000 shares
of common stock to non-employee directors of SkillSoft. No options have been
granted to date under the Director Plan.
Under the Director Plan, each non-employee director of SkillSoft (other
than current directors) will be granted a stock option to purchase 60,000 shares
of common stock on the date he or she is first elected to the board of
directors. The exercise price for all options granted under the Director Plan
will be equal to the fair market value of the common stock on the date of grant.
The options granted will become exercisable in four equal annual installments on
each anniversary of the date of grant, provided that the optionee remains a
director, and will become exercisable in full upon a change in control of
SkillSoft. Each option will expire on the earlier of ten years from the date of
grant or on the first anniversary of the date on which the optionee ceases to be
a director of SkillSoft.
401(K) PLAN
SkillSoft maintains a 401(k) plan qualified under Section 401(k) of the
Internal Revenue Code. Under the 401(k) plan, a participant may contribute a
maximum of 20% of his or her pre-tax salary, commissions and bonuses through
payroll deductions, up to the statutorily prescribed annual limit of $10,000 in
calendar year 1999. The percentage elected by more highly compensated
participants may be required to be lower. In addition, at the discretion of the
board of directors, SkillSoft may make discretionary matching or profit-sharing
contributions into the 401(k) plan for all eligible employees. During the years
ended January 31, 1998 and 1999, SkillSoft made no matching or profit-sharing
contributions to the 401(k) plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the establishment of the compensation committee in September 1999,
compensation decisions were made by the board of directors, including Mr. Moran,
an executive officer of SkillSoft. Since its establishment, the compensation
committee, comprised of Messrs. Coleman and Gross, has been responsible for
executive compensation decisions. No executive officer of SkillSoft has served
as a director or member of the compensation committee of any other entity whose
executive officers served as a director or member of the SkillSoft compensation
committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
SkillSoft's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director for monetary damages for breach
of his or her fiduciary duties as a director, except for liability (1) for any
breach of their duty of loyalty to the corporation or its stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law or (4) for any transaction from which the director
derived an improper personal benefit.
SkillSoft's certificate of incorporation provides that SkillSoft will
indemnify its directors and officers to the fullest extent permitted by law.
SkillSoft's certificate of incorporation permits SkillSoft to advance expenses
incurred by an indemnified director or officer in connection with the defense of
any action or proceeding arising out of such director's or officer's status or a
director or officer of SkillSoft upon an undertaking by such director or officer
to repay such advances if it is ultimately determined that the director or
officer is not entitled to such indemnification.
SkillSoft has also purchased directors and officers liability insurance.
44
<PAGE> 48
CERTAIN TRANSACTIONS
SkillSoft has engaged in the following transactions with the following
directors, executive officers and stockholders who beneficially own more than 5%
of the outstanding capital stock of SkillSoft and affiliates of these directors,
executive officers and 5% stockholders.
On December 10, 1997, SkillSoft sold 1,900,000 shares of restricted common
stock, at a purchase price of $.175 per share, to Charles E. Moran in exchange
for a cash payment of $166,250 and a promissory note in the original principal
amount of $166,250. This promissory note bears interest at a rate of 6.2% per
year and is due and payable on the earlier of December 10, 2002 or the date on
which Mr. Moran ceases to be an employee of SkillSoft. Mr. Moran pledged 950,000
shares as collateral for the promissory note.
On December 10, 1997, SkillSoft sold 100,000 shares of its common stock to
James Adkisson, a director of SkillSoft, at a purchase price of $.175 per share.
On January 8, 1998, SkillSoft sold an aggregate of 4,000,000 shares of its
Series A preferred stock to two purchasers at a purchase price of $1.75 per
share. Warburg, Pincus Ventures, L.P. purchased 3,600,000 of these shares. On
August 14, 1998 and February 16, 1999, SkillSoft issued and sold an aggregate of
4,761,905 shares of its Series B preferred stock to Warburg, Pincus Ventures,
L.P. at a purchase price of $2.10 per share. Mr. Gross and Ms. Chen, directors
of SkillSoft, are managing director and associate, respectively, of E.M.
Warburg, Pincus & Co., LLC, the manager of Warburg, Pincus Ventures, L.P.
On June 19, 1998, June 24, 1998 and June 26, 1998, SkillSoft sold 700,000,
300,000 and 600,000 shares of restricted common stock, at a purchase price of
$.175 per share, to Messrs. Nine, McDonald and Townsend, respectively, in
exchange for cash payments of $61,250, $26,250, and $52,500, respectively, and
promissory notes in the original principal amounts of $61,250, $26,250, and
$52,500, respectively. These promissory notes bear interest at a rate of 5.77%
per year and are due and payable in June 2003. Messrs. Nine, McDonald and
Townsend each pledged half of the shares issued to them as collateral for the
promissory notes.
On March 13, 1999 and March 15, 1999, SkillSoft sold 50,000 and 100,000
shares of restricted common stock, at a purchase price of $.175 per share, to
Messrs. Nine and McDonald, respectively, in exchange for cash payments of $4,375
and $8,750, respectively, and promissory notes in the principal amounts of
$4,375 and $8,750, respectively. These promissory notes bear interest at a rate
of 4.83% per year and are due and payable in March 2004. Messrs. Nine and
McDonald each pledged half of the shares issued to him as collateral for the
promissory notes.
On March 31, 1999, SkillSoft sold 150,000 and 50,000 shares of restricted
common stock, at a purchase price of $.175 per share, to Messrs. Moran and
Townsend, respectively, in exchange for cash payments of $13,125 and $4,375,
respectively, and promissory notes in the principal amounts of $13,125 and
$4,375, respectively. These promissory notes bear interest at a rate of 4.83%
per year and are due and payable in March 2004. Messrs. Moran and Townsend each
pledged half of the shares issued to him as collateral for the promissory notes.
On August 5, 1999, SkillSoft issued and sold an aggregate of 1,195,238 of
its Series C preferred stock to five purchasers at a purchase price of $3.15 per
share. William Coleman III and James Adkisson, directors of SkillSoft, each
purchased 31,746 of these shares. Warburg, Pincus Ventures, L.P. purchased
952,381 of these shares.
On August 31, 1999 and September 1, 1999, SkillSoft sold 60,000 shares of
restricted common stock to each of Messrs. Coleman and Adkisson at a purchase
price of $1.00 per share pursuant to its 1998 stock incentive plan.
SkillSoft believes that all transactions set forth above were made on terms
no less favorable to it than it would have obtained from unaffiliated third
parties.
45
<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of SkillSoft's common stock as of September 1, 1999, and as adjusted
to reflect the sale of the shares of common stock offered by this prospectus,
by:
- each person known by SkillSoft to be the beneficial owner of more than 5%
of its common stock;
- each executive officer;
- each of SkillSoft's directors; and
- all executive officers and directors of SkillSoft as a group.
Unless otherwise noted below, to the knowledge of SkillSoft, each person has
sole voting and investment power over the shares shown as beneficially owned
except to the extent authority is shared by spouses under applicable law and
except as set forth in the footnotes to the table. The number of shares of
common stock outstanding used in calculating the percentage ownership for each
person listed includes the shares of common stock underlying options held by
such person that are exercisable within 60 days after September 1, 1999, but
excludes shares of common stock underlying options held by any other person.
Percentage ownership is based on 14,199,017 shares of common stock outstanding
as of September 1, 1999, and an additional shares of common stock to
be outstanding upon completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON
STOCK OUTSTANDING
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Warburg, Pincus Ventures, L.P.(1)................. 9,314,286 65.6%
Stewart K.P. Gross(2)............................. 9,314,286 65.6
Charles E. Moran(3)............................... 2,050,000 14.4
Jerald A. Nine(4)................................. 750,000 5.3
Mark A. Townsend.................................. 650,000 4.6
Thomas J. McDonald................................ 400,000 2.8
James Adkisson.................................... 191,746 1.4
William T. Coleman III(5)......................... 91,746 *
C. Samantha Chen(6)............................... -- --
All executive officers and directors as a group
(eight persons)(7).............................. 13,447,778 94.7
</TABLE>
- -------------------------
* Less than 1%.
(1) The address for Warburg, Pincus Ventures, L.P. is 466 Lexington Avenue, 10th
Floor, New York, New York 10017-3147.
(2) Consists of shares beneficially owned by Warburg, Pincus Ventures, L.P.
Warburg, Pincus & Co. is the sole general partner of Warburg, Pincus
Ventures, L.P. Warburg, Pincus Ventures, L.P. is managed by E.M. Warburg,
Pincus & Co., LLC. Lionel I. Pincus is the managing partner of Warburg
Pincus & Co. and the managing member of E.M. Warburg, Pincus & Co., LLC, and
may be deemed to control both entities. Mr. Gross, a director of SkillSoft,
is a managing director and member of E.M. Warburg, Pincus & Co., LLC and a
general partner of Warburg
46
<PAGE> 50
Pincus & Co. Mr. Gross disclaims beneficial ownership of these shares. Mr.
Gross' address is c/o Warburg, Pincus Ventures L.P., 466 Lexington Avenue,
10th Floor, New York, New York 10017-3147.
(3) Consists of 1,100,000 shares beneficially owned by Mr. Moran and a total of
950,000 shares of common stock beneficially owned by Mr. Moran's wife, as
trustee of various trusts for the benefit of Mr. Moran's children. Mr. Moran
disclaims beneficial ownership of the shares held in trust. Excluding these
shares, Mr. Moran beneficially owns a total of 1,100,000 shares of common
stock, or 7.7% of the outstanding common stock prior to this offering. Mr.
Moran's address is c/o SkillSoft Corporation, 20 Industrial Park Drive,
Nashua, New Hampshire 03062.
(4) Mr. Nine's address is c/o SkillSoft Corporation, 20 Industrial Park Drive,
Nashua, New Hampshire 03062.
(5) Consists of shares beneficially owned by the Coleman Family Trust, of which
Mr. Coleman is trustee.
(6) Excludes shares beneficially owned by Warburg, Pincus Ventures, L.P. Ms.
Chen is an associate of E.M. Warburg, Pincus & Co., LLC, the manager of
Warburg, Pincus Ventures, L.P.
(7) See Notes 2, 3, 5 and 6.
47
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of
SkillSoft will consist of 50,000,000 shares of common stock, $0.001 par value
per share, and 5,000,000 shares of preferred stock, $0.001 par value per share.
As of September 1, 1999, there were outstanding 14,199,017 shares of common
stock held by 25 stockholders of record and options to purchase an aggregate of
881,965 shares of common stock.
The following summary of certain provisions of our securities and various
provisions of our certificate of incorporation and bylaws is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to our certificate of incorporation and bylaws included as exhibits to the
Registration Statement of which this prospectus is a part. See "Where You Can
Find Additional Information."
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends declared by the board of directors, subject to any
preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of SkillSoft, the holders of common stock
are entitled to receive ratably the net assets of SkillSoft available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of common
stock are, and the shares offered by SkillSoft in this offering will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to the rights of the holders
of shares of any series of preferred stock which SkillSoft may designate and
issue in the future. Certain holders of common stock have the right to require
SkillSoft to register their shares of common stock under the Securities Act in
certain circumstances. See "Shares Eligible for Future Sale."
PREFERRED STOCK
Under the terms of our certificate of incorporation, the board of directors
is authorized to designate and issue shares of preferred stock in one or more
series without stockholder approval. The Board has discretion to determine the
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing the board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire, a
majority of the outstanding voting stock of SkillSoft. SkillSoft has no present
plans to issue any shares of preferred stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
SkillSoft is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved by the board of directors and/or stockholders
of SkillSoft in a prescribed
48
<PAGE> 52
manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of the corporation's voting stock.
SkillSoft's certification of incorporation and bylaws provide for the
division of the board of directors into three classes as nearly equal in size as
possible with staggered three-year terms. Any vacancy on the board of directors,
including a vacancy resulting from an enlargement of the board of directors, may
only be filled by vote of a majority of the directors then in office. The
classification of the board of directors and the limitation on filling of
vacancies could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, control of SkillSoft.
SkillSoft's bylaws also provide that any action required or permitted to be
taken by the stockholders of SkillSoft at an annual meeting or special meeting
of stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The bylaws further
provide that special meetings of the stockholders may only be called by the
Chairman of the Board, the President or the board of directors. In order for any
matter to be considered "properly brought" before a meeting, a stockholder must
comply with certain requirements regarding advance notice and provide certain
information to SkillSoft. These provisions could have the effect of delaying
until the next stockholders meeting stockholder actions which are favored by the
holders of a majority of the outstanding voting securities of SkillSoft. These
provisions could also discourage a third party from making a tender offer for
the common stock, because even if it acquired a majority of the outstanding
voting securities of SkillSoft, it would be able to take action as a stockholder
(such as electing new directors or approving a merger) only at a duly called
stockholders' meeting and not by written consent.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services L.L.C.
49
<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for SkillSoft's common
stock. Future sales of substantial amounts of common stock in the public market
could adversely affect prevailing market prices from time to time. Furthermore,
because only a limited number of shares will be available for sale shortly after
this offering because of contractual and legal restrictions on resale described
below, sales of substantial amounts of common stock of SkillSoft in the public
market after the restrictions lapse could adversely affect the prevailing market
price and the ability of SkillSoft to raise equity capital in the future.
Based on shares outstanding at September 1, 1999, upon completion of this
offering SkillSoft will have outstanding an aggregate of shares
of common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants. Of these shares, the
shares sold in this offering will be freely tradable without
restrictions or further registration under the Securities Act, unless the shares
are purchased by an existing affiliate of SkillSoft, as that term is defined in
Rule 144 under the Securities Act.
The remaining 14,199,017 shares of common stock held by existing
stockholders are restricted shares or are subject to the contractual
restrictions described below. Restricted shares may generally be sold in the
public market only if registered or if they qualify for an exception from
registration under Rule 144 promulgated under the Securities Act, which is
summarized below. Of these restricted shares, 7,594,250 shares will be available
for resale in the public market in reliance on Rule 144 and Rule 701 beginning
90 days following the closing of this offering. However, all of these 7,594,250
shares are subject to lock-up agreements. The remaining 6,604,767 shares become
eligible for resale in the public market at various dates thereafter, of which
shares are subject to lock-up agreements.
All of the officers and directors and some of the stockholders and
optionholders of SkillSoft are bound by lock-up agreements in favor of the
underwriters. As a result, these individuals and entities are not permitted to
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock or publicly disclose the intention
to make any such offer, sale, pledge or disposition for a period of 180 days
after the date of this prospectus, without the prior written consent of Credit
Suisse First Boston. Credit Suisse First Boston currently has no plans to
release any portion of the securities subject to lock-up agreements. When
determining whether or not to release shares from the lock-up agreements, Credit
Suisse First Boston will consider, among other factors, the stockholder's
reasons for requesting the release, the number of shares for which the release
is being requested and market conditions at the time.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year would be entitled to sell a certain number of
shares within any three-month period. That certain number of shares cannot
exceed the greater of one percent of the number of shares of common stock then
outstanding, which will equal approximately shares immediately
after this offering, or the average weekly trading volume of the common stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also
subject to manner of sale provisions, notice requirements and the availability
of current public information about SkillSoft. Rule 144 also provides that
affiliates of SkillSoft who are selling shares of common stock that are not
restricted shares must nonetheless comply with the same restrictions applicable
to restricted shares with the exception of the holding period requirement.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
SkillSoft at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be
50
<PAGE> 54
sold for at least two years, is entitled to sell those shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
Rule 701 may be relied upon with respect to the resale of shares of common
stock originally purchased from SkillSoft under its stock option plan, so long
as the option was granted prior to the date of this prospectus. Shares issued in
reliance on Rule 701 are restricted shares and, subject to the lock-up
agreements described above, beginning 90 days after the date of this prospectus,
may be sold by persons other than affiliates, subject only to the manner of sale
provisions of Rule 144, and may be sold by affiliates under Rule 144 without
compliance with its one-year minimum holding period requirement.
SkillSoft has agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of common stock or any securities convertible into or exercisable
or exchangeable for common stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing, for a period of 180 days after
the date of this prospectus, without the prior written consent of Credit Suisse
First Boston, subject to limited exceptions such as issuances under its stock
plans or in connection with an acquisition of a business.
Following this offering, SkillSoft intends to file registration statements
under the Securities Act covering approximately 2,698,126 shares of common stock
issuable upon the exercise of stock options or reserved for issuance under
SkillSoft's 1998 Stock Incentive Plan and 1999 Non-Employee Director Stock
Option Plan. The shares registered under these registration statements will,
subject to Rule 144 provisions applicable to affiliates, be available for sale
in the open market, except to the extent that the shares are subject to
SkillSoft's vesting restrictions or the lock-up agreements described above. See
"Management -- Stock Plans."
In addition, following this offering, under specified conditions and
subject to customary exceptions, holders of 9,957,143 shares of common stock
will have demand registration rights with respect to their shares of common
stock, subject to the 180 day lock-up period described above, to require
SkillSoft to register their shares of common stock under the Securities Act, and
they will have the right to participate in future registrations of securities by
SkillSoft. SkillSoft is not required to effect a registration within six months
after the closing of this offering and it is not required to effect more than
three demand registrations on behalf of these holders. SkillSoft is generally
required to bear all of the expenses of all registrations. Registration of any
of the shares of common stock would result in these shares becoming freely
tradeable without restriction under the Securities Act upon effectiveness of the
registration statement.
51
<PAGE> 55
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Banc of America
Securities LLC and Thomas Weisel Partners LLC are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Banc of America Securities LLC..............................
Thomas Weisel Partners LLC..................................
---------
Total.............................................
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us...... $ $ $ $
Expenses payable by us........ $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect sales to accounts
over which any underwriter exercises discretionary authority to exceed 5% of the
shares of common stock being offered.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 63 filed
public offerings of equity securities, of which 33 have been completed, and has
acted as a syndicate member in an additional 32 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors, or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement entered into in connection with this offering.
Credit Suise First Boston Corporation, one of the representatives of the
underwriters in this Offering, is an indirect subsidiary of Credit Suisse Group,
which indirectly holds a 19.9% passive
52
<PAGE> 56
minority interest in Warburg, Pincus & Co., the general partner of Warburg,
Pincus Ventures, L.P. Warburg, Pincus Ventures, L.P. is a stockholder of
SkillSoft.
We have a line of credit agreement with GreyRock Capital. GreyRock Capital
is a division of Banc of America Commercial Finance Corporation. Both Banc of
America Commercial Finance Corporation and Banc of America Securities LLC are
subsidiaries of Bank of America Corporation.
We and each of our directors and officers and some of our stockholders and
optionholders have agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
(the "Securities Act") relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus
except, in our case, issuances pursuant to the exercise of employee stock
options outstanding on the date hereof or pursuant to our stock option plans.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors
and certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in this offering will be reduced to the extent those
persons purchase reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We will make application to list the shares of common stock on The Nasdaq
Stock Market's National Market.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors considered in
determining the public offering price will include:
- the information set forth in this prospectus and otherwise available to
the representatives;
- the history of, and the prospects for, SkillSoft and the industry in
which it competes;
- an assessment of our management;
- the prospects for, and the timing of, future earnings of SkillSoft;
- the present state of SkillSoft's development and its current financial
condition;
- the general condition of the securities markets at the time of the
offering;
- the recent market prices of, and the demand for, publicly-traded common
stock of companies in businesses similar to those of SkillSoft;
- market conditions for initial public offerings; and
- other relevant factors.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
53
<PAGE> 57
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a stabilizing transaction or in a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
54
<PAGE> 58
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchases are advised to seek legal advice prior to any resale of the
common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities law to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canada courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities commission a report within ten days of the sales of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
55
<PAGE> 59
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for SkillSoft by Hale and Dorr LLP, Boston, Massachusetts. Certain legal
matters will be passed upon for the underwriters by Katten Muchin & Zavis,
Chicago, Illinois.
EXPERTS
The financial statements of SkillSoft as of January 31, 1998 and 1999 and
for each of the periods then ended, which are included in this prospectus and
registration statement, have been so included in reliance on the report of
Arthur Andersen LLP, independent public accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
SkillSoft has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to SkillSoft and the common stock, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of the contract
or document filed as an exhibit to the registration statement, and each such
statement is qualified in all respects by reference to such exhibit. Copies of
the registration statement may be examined without charge at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and World Trade Center, Thirteenth Floor, New York, New York 10048. Copies of
all or any portion of the registration statement may be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, or by calling the Commission at
1-800-SEC-0330, at prescribed rates. The Commission also maintains a web site at
http://www.sec.gov that contains reports, proxy, registration and information
statements and other information regarding registrants, such as SkillSoft, that
make electronic filings with the Commission.
SkillSoft intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm.
56
<PAGE> 60
SKILLSOFT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of January 31, 1998 and 1999 and July 31,
1999 (Unaudited).......................................... F-3
Statements of Operations for the Period from Incorporation
(October 15, 1997) to January 31, 1998 and for the Year
Ended January 31, 1999 and the Six Months Ended July 31,
1998 and 1999 (Unaudited)................................. F-4
Statements of Stockholders' Equity for the Period from
Incorporation (October 15, 1997) to January 31, 1998 and
for the Year Ended January 31, 1999 and the Six Months
Ended July 31, 1999 (Unaudited)........................... F-5
Statements of Cash Flows for the Period from Incorporation
(October 15, 1997) to January 31, 1998 and for the Year
Ended January 31, 1999 and for the Six Months Ended July
31, 1998 and 1999 (Unaudited)............................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SkillSoft Corporation:
We have audited the accompanying balance sheets of SkillSoft Corporation (a
Delaware corporation) as of January 31, 1998 and 1999, and the related
statements of operations, stockholders' equity and cash flows for the period
from incorporation (October 15, 1997) to January 31, 1998 and for the year ended
January 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SkillSoft Corporation as of
January 31, 1998 and 1999, and the results of its operations and its cash flows
for the period from incorporation (October 15, 1997) to January 31, 1998 and for
the year ended January 31, 1999 in conformity with generally accepted accounting
principles.
Arthur
Andersen LLP
Boston, Massachusetts
March 26, 1999
F-2
<PAGE> 62
SKILLSOFT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, JULY 31, 1999
------------------------ ---------------------------
PRO FORMA
1998 1999 ACTUAL (NOTE 2(C))
---------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $2,650,637 $ 623,322 $ 25,442 $ 25,442
Short-term investments................................. 4,371,333 3,341,702 498,560 498,560
Accounts receivable.................................... -- -- 887,368 887,368
Prepaid expenses and other current assets.............. -- 116,144 699,695 699,695
---------- ----------- ------------ ------------
Total current assets............................ 7,021,970 4,081,168 2,111,065 2,111,065
PROPERTY AND EQUIPMENT, AT COST:
Computer equipment..................................... -- 357,719 425,427 425,427
Furniture and fixtures................................. -- 173,456 178,312 178,312
Leasehold improvements................................. -- 23,944 23,944 23,944
---------- ----------- ------------ ------------
-- 555,119 627,683 627,683
Less -- Accumulated depreciation and amortization...... -- 85,726 180,747 180,747
---------- ----------- ------------ ------------
-- 469,393 446,936 446,936
---------- ----------- ------------ ------------
$7,021,970 $ 4,550,561 $ 2,558,001 $ 2,558,001
========== =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 78,537 $ 210,741 $ 421,000 $ 421,000
Accrued expenses....................................... 624,592 1,144,703 1,255,417 1,255,417
Deferred revenue....................................... -- -- 251,194 251,194
---------- ----------- ------------ ------------
Total current liabilities....................... 703,129 1,355,444 1,927,611 1,927,611
---------- ----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $.001 par
value --
Authorized, issued and outstanding -- 4,000,000
shares at January 31, 1998 and 1999 and July 31,
1999, no shares pro forma (liquidation preference
of $7,596,822 at January 31, 1999)................. 6,957,774 6,957,774 6,957,774 --
Series B convertible preferred stock, $.001 par
value --
Authorized -- 4,761,905 shares
Issued and outstanding -- 2,380,953 and 4,761,905
shares at January 31, 1999 and July 31, 1999,
respectively, no shares pro forma (liquidation
preference of $5,153,426 at January 31, 1999)...... -- 4,993,767 9,993,661 --
Class A common stock, $.001 par value --
Authorized -- 26,000,000 shares
Issued and outstanding -- 2,010,000, 3,696,000 and
4,106,062 shares at January 31, 1998 and 1999 and
July 31, 1999, respectively, no shares pro forma... 2,010 3,696 4,106 --
Common stock, $.001 par value --
Issued and outstanding -- no shares at January 31,
1998 and 1999 and July 31, 1999, 12,867,967 shares
pro forma (see Note 2(c)).......................... -- -- -- 12,868
Additional paid-in capital............................. 349,740 643,104 1,468,611 18,411,284
Deferred compensation.................................. -- -- (715,811) (715,811)
Notes receivable from stockholders..................... (166,250) (306,250) (339,063) (339,063)
Accumulated deficit.................................... (824,433) (9,096,974) (16,738,888) (16,738,888)
---------- ----------- ------------ ------------
Total stockholders' equity...................... 6,318,841 3,195,117 630,390 630,390
---------- ----------- ------------ ------------
$7,021,970 $ 4,550,561 $ 2,558,001 $ 2,558,001
========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 63
SKILLSOFT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCORPORATION
(OCTOBER 15,
1997) TO YEAR ENDED SIX MONTHS ENDED JULY 31,
JANUARY 31, JANUARY 31, -------------------------
1998 1999 1998 1999
-------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE............................... $ -- $ -- $ -- $ 1,088,224
COST OF REVENUE....................... -- -- -- 254,455
--------- ----------- ----------- -----------
Gross profit................... -- -- -- 833,769
--------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and development............ 177,836 4,117,187 1,224,356 3,743,121
Selling and marketing............... -- 1,671,225 178,585 2,849,386
General and administrative.......... 649,404 2,820,646 1,444,876 1,964,517
Amortization of deferred
compensation..................... -- -- -- 38,345
--------- ----------- ----------- -----------
Total operating expenses.... 827,240 8,609,058 2,847,817 8,595,369
INTEREST INCOME....................... 2,807 336,517 120,308 119,686
--------- ----------- ----------- -----------
Net loss....................... $(824,433) $(8,272,541) $(2,727,509) $(7,641,914)
========= =========== =========== ===========
NET LOSS PER SHARE (Note 2(e)):
Basic and diluted................... $ (0.88) $ (2.70) $ (1.13) $ (1.91)
========= =========== =========== ===========
Basic and diluted weighted average
common shares outstanding........ 938,241 3,062,038 2,417,569 3,994,974
========= =========== =========== ===========
PRO FORMA NET LOSS PER SHARE (Note
2(e)):
Pro forma basic and diluted......... $ (1.01) $ (0.61)
=========== ===========
Pro forma basic and diluted weighted
average common shares
outstanding...................... 8,170,975 12,546,408
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 64
SKILLSOFT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
--------------------------------------------------- CLASS A
SERIES A SERIES B COMMON STOCK
------------------------ ------------------------ ----------------------
NUMBER OF CARRYING NUMBER OF CARRYING NUMBER OF $.001 PAR
SHARES VALUE SHARES VALUE SHARES VALUE
--------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCORPORATION (OCTOBER 15,
1997)....................... -- $ -- -- $ -- -- $ --
Initial capitalization...... -- -- -- -- 2,010,000 2,010
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $42,226.......... 4,000,000 6,957,774 -- -- -- --
Net loss.................... -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- -------
BALANCE, JANUARY 31, 1998.... 4,000,000 6,957,774 -- -- 2,010,000 2,010
Issuance of Class A
restricted common stock... -- -- -- -- 1,686,000 1,686
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $6,234........... -- -- 2,380,953 4,993,767 -- --
Net loss.................... -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- -------
BALANCE, JANUARY 31, 1999.... 4,000,000 6,957,774 2,380,953 4,993,767 3,696,000 3,696
Issuance of Class A
restricted common stock
(unaudited)............... -- -- -- -- 390,000 390
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $106
(unaudited)............... -- -- 2,380,952 4,999,894 -- --
Deferred compensation
related to grants of stock
options and issuances of
Class A restricted common
stock (unaudited)......... -- -- -- -- -- --
Amortization of deferred
compensation (unaudited).. -- -- -- -- -- --
Exercise of stock options
(unaudited)............... -- -- -- -- 20,062 20
Net loss (unaudited)........ -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- -------
BALANCE, JULY 31, 1999
(UNAUDITED)................. 4,000,000 6,957,774 4,761,905 9,993,661 4,106,062 4,106
Conversion of Class A common
stock into common stock
(unaudited)............... -- -- -- -- (4,106,062) (4,106)
Conversion of convertible
preferred stock into
common stock
(unaudited)............... (4,000,000) (6,957,774) (4,761,905) (9,993,661) -- --
---------- ----------- ---------- ----------- ---------- -------
PRO FORMA BALANCE, JULY 31,
1999 (UNAUDITED).......... -- $ -- -- $ -- -- $ --
========== =========== ========== =========== ========== =======
<CAPTION>
COMMON STOCK NOTES
---------------------- RECEIVABLE
NUMBER OF $.001 PAR ADDITIONAL DEFERRED FROM ACCUMULATED
SHARES VALUE PAID-IN CAPITAL COMPENSATION STOCKHOLDERS DEFICIT
--------- --------- --------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INCORPORATION (OCTOBER 15,
1997)....................... -- $ -- $ -- $ -- $ -- $ --
Initial capitalization...... -- -- 349,740 -- (166,250) --
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $42,226.......... -- -- -- -- -- --
Net loss.................... -- -- -- -- -- (824,433)
---------- ------- ----------- --------- --------- ------------
BALANCE, JANUARY 31, 1998.... -- -- 349,740 -- (166,250) (824,433)
Issuance of Class A
restricted common stock... -- -- 293,364 -- (140,000) --
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $6,234........... -- -- -- -- -- --
Net loss.................... -- -- -- -- -- (8,272,541)
---------- ------- ----------- --------- --------- ------------
BALANCE, JANUARY 31, 1999.... -- -- 643,104 -- (306,250) (9,096,974)
Issuance of Class A
restricted common stock
(unaudited)............... -- -- 67,860 -- (32,813) --
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $106
(unaudited)............... -- -- -- -- -- --
Deferred compensation
related to grants of stock
options and issuances of
Class A restricted common
stock (unaudited)......... -- -- 754,156 (754,156) -- --
Amortization of deferred
compensation (unaudited).. -- -- -- 38,345 -- --
Exercise of stock options
(unaudited)............... -- -- 3,491 -- -- --
Net loss (unaudited)........ -- -- -- -- -- (7,641,914)
---------- ------- ----------- --------- --------- ------------
BALANCE, JULY 31, 1999
(UNAUDITED)................. -- -- 1,468,611 (715,811) (339,063) (16,738,888)
Conversion of Class A common
stock into common stock
(unaudited)............... 4,106,062 4,106 -- -- -- --
Conversion of convertible
preferred stock into
common stock
(unaudited)............... 8,761,905 8,762 16,942,673 -- -- --
---------- ------- ----------- --------- --------- ------------
PRO FORMA BALANCE, JULY 31,
1999 (UNAUDITED).......... 12,867,967 $12,868 $18,411,284 $(715,811) $(339,063) $(16,738,888)
========== ======= =========== ========= ========= ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
INCORPORATION (OCTOBER 15,
1997)....................... $ --
Initial capitalization...... 185,500
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $42,226.......... 6,957,774
Net loss.................... (824,433)
-----------
BALANCE, JANUARY 31, 1998.... 6,318,841
Issuance of Class A
restricted common stock... 155,050
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $6,234........... 4,993,767
Net loss.................... (8,272,541)
-----------
BALANCE, JANUARY 31, 1999.... 3,195,117
Issuance of Class A
restricted common stock
(unaudited)............... 35,437
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $106
(unaudited)............... 4,999,894
Deferred compensation
related to grants of stock
options and issuances of
Class A restricted common
stock (unaudited)......... --
Amortization of deferred
compensation (unaudited).. 38,345
Exercise of stock options
(unaudited)............... 3,511
Net loss (unaudited)........ (7,641,914)
-----------
BALANCE, JULY 31, 1999
(UNAUDITED)................. 630,390
Conversion of Class A common
stock into common stock
(unaudited)............... --
Conversion of convertible
preferred stock into
common stock
(unaudited)............... --
-----------
PRO FORMA BALANCE, JULY 31,
1999 (UNAUDITED).......... $ 630,390
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 65
SKILLSOFT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCORPORATION
(OCTOBER 15,
1997) TO YEAR ENDED SIX MONTHS ENDED JULY 31,
JANUARY 31, JANUARY 31, -------------------------
1998 1999 1998 1999
------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $ (824,433) $(8,272,541) $(2,727,509) $(7,641,914)
Adjustments to reconcile net loss to net
cash used in operating activities --
Amortization of deferred compensation... -- -- -- 38,345
Depreciation and amortization........... -- 85,726 39,000 95,021
Changes in current assets and
liabilities --
Accounts receivable................... -- -- -- (887,368)
Prepaid expenses and other current
assets............................. -- (116,144) (273,155) (583,551)
Accounts payable...................... 78,537 132,204 372,135 210,259
Accrued expenses...................... 624,592 520,111 134,004 110,714
Deferred revenue...................... -- -- -- 251,194
----------- ----------- ----------- -----------
Net cash used in operating
activities....................... (121,304) (7,650,644) (2,455,525) (8,407,300)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........ -- (555,119) (317,368) (72,564)
Purchases of short-term investments........ (4,371,333) (3,341,702) (2,910,357) (9,868,310)
Sales of short-term investments............ -- 4,371,333 3,398,531 12,711,452
----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities............. (4,371,333) 474,512 170,806 2,770,578
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Series A convertible preferred
stock, net of issuance costs............ 6,957,774 -- -- --
Issuance of Series B convertible preferred
stock, net of issuance costs............ -- 4,993,767 -- 4,999,894
Issuance of Class A common stock........... 185,500 -- -- --
Issuance of Class A restricted common
stock................................... -- 155,050 155,050 35,437
Exercise of stock options.................. -- -- -- 3,511
----------- ----------- ----------- -----------
Net cash provided by financing
activities....................... 7,143,274 5,148,817 155,050 5,038,842
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 2,650,637 (2,027,315) (2,129,669) (597,880)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD..................................... -- 2,650,637 2,650,637 623,322
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD..... $ 2,650,637 $ 623,322 $ 520,968 $ 25,442
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
TRANSACTIONS:
Issuance of Class A restricted common stock
for notes receivable from
stockholders............................ $ 166,250 $ 140,000 $ 140,000 $ 32,813
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 66
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS
SkillSoft Corporation (the Company) was incorporated in Delaware on October
15, 1997. The Company commenced operations on January 8, 1998 in conjunction
with its initial round of financing. The Company is a provider of web-based
training resources that cover a variety of professional effectiveness and
business topics.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Interim Financial Statements
The accompanying balance sheet as of July 31, 1999, the statements of
operations and cash flows for the six months ended July 31, 1998 and 1999 and
the statement of stockholders' equity for the six months ended July 31, 1999 are
unaudited, but in the opinion of management, include all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of results
for these interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted, although management believes that the
disclosures included are adequate to make the information presented not
misleading. The results of operations for the six months ended July 31, 1999 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
(c) Unaudited Pro Forma Presentation
Upon the closing of the Company's proposed initial public offering, the
Company will have a single class of common stock. All shares of Class A and
Class B common stock issued and outstanding will be converted into a new single
class of common stock in connection with this offering.
The unaudited pro forma balance sheet as of July 31, 1999 and the pro forma
net loss per share for the six months ended July 31, 1999 reflect the automatic
conversion of all outstanding shares of Series A and Series B convertible
preferred stock into 8,761,905 shares of common stock, which will occur upon the
closing of the Company's proposed initial public offering.
(d) Revenue Recognition
The Company follows the provisions of the American Institute of Certified
Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4. The Company derives revenue primarily
pursuant to license agreements under which customers license usage of delivered
products for a period of one, two or three years. On each anniversary date
during the term of multi-year license agreements, customers are generally
allowed to exchange any or all of the licensed products for an equivalent number
of alternative products within the Company's course library. The first year
license fee is generally billed in advance and recognized
F-7
<PAGE> 67
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
as revenue at the time of delivery of the products, provided the Company's fees
are fixed or determinable and collections of accounts receivable are probable.
In the event that the customer does not initially specify the entire set of
licensed courses to be delivered or if some licensed courses are not immediately
available for delivery, the portion of the license revenue associated with those
undelivered courses is not recognized until those courses are delivered.
Subsequent annual license fees for multi-year agreements will be generally
billed and recognized on each anniversary date or, if the customer exchanges
courses at the renewal date, upon delivery of the exchanged courses, provided
the Company's fees are fixed or determinable and collections of accounts
receivable are probable. Revenue from license agreements providing unlimited
product exchange rights exercisable other than on each anniversary date during
the term of the agreement or providing for licenses of all courses currently
available and to be developed during a specified period is recognized ratably
over the license term. The Company also derives revenue from extranet hosting
and online mentoring services, which is recognized as revenue as the service is
performed and have been minimal to date. The Company may offer payment terms
generally up to six months from the initial shipment date or anniversary date
for multi-year agreements to some of its customers. The cost of satisfying any
Post Contract Support (PCS) is accrued and included in deferred revenue at the
time revenue is recognized, as PCS fees are included in the annual license fee.
The estimated cost of providing PCS during the agreements is insignificant and
the Company does not offer it separately. Unspecified upgrades or enhancements
offered have been and are expected to be minimal and infrequent. For
multi-element agreements, vendor specific objective evidence exists to allocate
the total fee to the undelivered elements of the agreement. Deferred revenue
represents the undelivered portion of first year license fees and PCS for which
the Company has received payment.
(e) Net Loss Per Share
Basic and diluted net loss per common share was determined by dividing net
loss by the weighted average common shares outstanding during the period. Basic
and diluted net loss per share are the same, as outstanding common stock options
and convertible preferred stock are antidilutive, because the Company has
recorded a net loss for all periods presented. Options to purchase a weighted
total of 0, 157,447, 27,116 and 700,153 common shares have been excluded from
the computation of diluted weighted average shares outstanding for the period
from incorporation (October 15, 1997) to January 31, 1998, for the year ended
January 31, 1999 and for the six months ended July 31, 1998 and 1999,
respectively. Shares of common stock issuable upon the conversion of outstanding
convertible preferred stock have also been excluded for all periods presented.
In accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 98, Earnings Per Share in an Initial Public Offering, there were no
issuances of the Company's common stock at nominal consideration prior to the
Company's planned initial public offering.
The calculation of pro forma net loss per common share assumes that all
Series A and Series B convertible preferred stock had been converted to common
stock as of the issuance date.
(f) Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with original
maturities of 90 days or less at the time of purchase to be cash equivalents. At
January 31, 1998 and 1999 and July 31, 1999, cash equivalents consisted mainly
of money market funds. The Company accounts for its investments in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Under SFAS No. 115,
securities that the
F-8
<PAGE> 68
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
Company has the positive intent and ability to hold to maturity are reported at
amortized cost, which approximates market value, and are classified as
held-to-maturity. At January 31, 1998 and 1999, the Company's investments
consisted of held-to-maturity securities that are investments in high grade
commercial paper instruments, short-term notes and U.S. Treasury bills. At July
31, 1999, the Company's investments consisted of a held-to-maturity security
invested in a short-term note. All of these investments are classified as
current assets in the accompanying balance sheets as they mature within one
year.
(g) Prepaid Expenses and Other Current Assets
As of July 31, 1999, prepaid expenses and other current assets consisted
primarily of approximately $488,000 of prepaid commissions paid to the Company's
salespeople. This asset will be charged to expense as the related revenue is
recognized and the commissions are earned during the fiscal year.
(h) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of property and equipment
over their estimated useful lives, on a straight-line basis, as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
-------------
<S> <C>
Computer equipment....................................... 2-3 years
Furniture and fixtures................................... 5 years
Leasehold improvements................................... Life of lease
</TABLE>
(i) Software Development Costs and Research and Development Expenses
SFAS No. 86, Accounting for the Costs of Computer Software To Be Sold,
Leased or Otherwise Marketed, requires the capitalization of certain computer
software development costs incurred after technological feasibility is
established. Once technological feasibility of a software product has been
established, the additional development costs incurred to bring the product to a
commercially acceptable level has not been and is not expected to be
significant. As a result, the Company has not capitalized software development
costs as of January 31, 1998 and 1999 and July 31, 1999.
The Company charges all research and development expenses, which include
course content development fees, to operations as incurred.
(j) Comprehensive Loss
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions, other events and circumstances from nonowner sources.
The Company does not have any components of comprehensive loss other than its
reported net loss.
F-9
<PAGE> 69
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
(k) Fair Value of Financial Instruments
Financial instruments consist mainly of cash and cash equivalents,
short-term investments accounts receivable and accounts payable. The carrying
amounts of these instruments approximate their fair value.
(l) Concentrations of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company's accounts receivable credit risk is
concentrated domestically, because for the six months ended July 31, 1999 all
revenue was derived from domestic customers. For the six months ended and at
July 31, 1999, the Company had a customer that individually comprised 51% and
75% of the Company's total revenue and accounts receivable, respectively.
(m) Disclosures About Segments of an Enterprise
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, in the fiscal year ended January 31, 1999.
SFAS No. 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. The Company's chief operating decision makers,
as defined under SFAS No. 131, are the Chief Executive Officer and the Chief
Financial Officer. To date, the Company has viewed its operations and manages
its business as principally one operating segment. As a result, the financial
information disclosed herein represents all of the material financial
information related to the Company's principal operating segment.
(n) Long-Lived Assets
The Company follows the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of.
SFAS No. 121 requires that long-lived assets be reviewed for impairment by
comparing the fair value of the assets with the carrying amount. Any write-downs
are to be treated as permanent reductions in the carrying amount of the assets.
The Company believes that the carrying value of these assets is realizable and
to date has not recorded any impairment charges.
(o) Recent Accounting Pronouncements
In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
certain computer software costs associated with internal-use software to be
expensed as incurred until certain capitalization
F-10
<PAGE> 70
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
criteria are met. The Company adopted SOP No. 98-1 beginning February 1, 1999.
Adoption of this statement did not have a material impact on the Company's
financial position or results of operations.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-up Activities, which requires that all nongovernmental entities expense
the costs of start-up activities, including organizational costs, as those costs
are incurred. The Company has recorded all such costs as expenses in the period
incurred.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for periods
beginning after June 15, 2000. SFAS No. 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because the Company currently
holds no derivative financial instruments and does not currently engage in
hedging activities, the adoption of SFAS No. 133 is not expected to have a
material impact on the Company's financial condition or results of operations.
(3) NOTES RECEIVABLE FROM STOCKHOLDERS
In January 1998, the Company issued 950,000 shares of Class A common stock
to a founder of the Company in exchange for a note receivable equal to the fair
market value of the shares. The note receivable accrues interest at a rate of
6.2% per annum and the principal and all outstanding interest are due upon the
maturity of the note in December 2002. The balance on this note receivable is
$166,250 at January 31, 1998 and 1999 and July 31, 1999, and is included as a
reduction of stockholders' equity in the accompanying balance sheets and
statements of stockholders' equity.
During the fiscal year ended January 31, 1999, the Company issued a total
of 800,000 shares of Class A restricted common stock to three founders of the
Company in exchange for notes receivable equal to the fair market value of the
shares. The shares vest ratably on a monthly basis over three years (see Note
6(b)). The notes receivable accrue interest at a rate of 5.77% per annum and the
principal and all outstanding interest are due upon the maturity of the notes in
June 2003. The total balance of these notes receivable is $140,000 at January
31, 1999 and July 31, 1999 and is included as a reduction of stockholders'
equity in the accompanying balance sheets and statements of stockholders'
equity.
During February 1999, the Company issued a total of 187,500 shares of Class
A restricted common stock to several officers of the Company in exchange for
notes receivable equal to the fair market value of the shares. The shares vest
ratably on a monthly basis over three years (see Note 6(b)). The notes
receivable accrue interest at a rate of 4.83% per annum and the principal and
all outstanding interest are due upon the maturity of the notes in March 2004.
The total balance of these notes receivable is $32,813 at July 31, 1999 and is
included as a reduction of stockholders' equity in the accompanying balance
sheets and statements of stockholders' equity.
(4) INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes. Under the liability
method specified by SFAS No. 109, a deferred tax asset or liability is
determined based on the difference between the financial statement and tax bases
of assets and liabilities, as measured by the enacted tax rates assumed to be in
effect
F-11
<PAGE> 71
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
when these differences are expected to reverse. A deferred tax valuation
allowance is required if it is more likely than not that all or a portion of the
recorded deferred tax assets will not be realized.
No provision for federal or state income taxes has been recorded, as the
Company incurred net operating losses for all periods presented. As of January
31, 1998 and 1999, the Company had net operating loss carryforwards of
approximately $164,000 and $3,741,000, respectively, available to reduce future
income taxes, if any. The Company also has available federal tax credit
carryforwards of approximately $120,000. If not utilized, these carryforwards
expire at various dates through the fiscal year ended January 31, 2019. If
substantial changes in the Company's ownership should occur, as defined by
Section 382 of the Internal Revenue Code (the Code), there could be annual
limitations on the amount of carryforwards which can be realized in future
periods. The Company has completed several financings since its inception and
has incurred ownership changes as defined under the Code. The Company does not
believe that these changes in ownership will have a material impact on its
ability to use its net operating loss and tax credit carryforwards.
Net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1998 1999
--------- -----------
<S> <C> <C>
Net operating loss carryforwards................ $ 56,000 $ 1,272,000
Nondeductible expenses and reserves............. 262,000 2,072,000
Tax credits..................................... -- 120,000
--------- -----------
318,000 3,464,000
Less--Valuation allowance....................... (318,000) (3,464,000)
--------- -----------
$ -- $ --
========= ===========
</TABLE>
Due to the Company's history of operating losses, there is significant
uncertainty surrounding the Company's ability to utilize its net operating loss
and tax credit carryforwards. Accordingly, the Company has provided a full
valuation allowance against its otherwise recognizable deferred tax assets as of
January 31, 1998 and 1999.
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
JANUARY 31,
--------------
1998 1999
----- -----
<S> <C> <C>
Income tax provision at federal statutory rate........ (34.0)% (34.0)%
Increase (decrease) in tax resulting from --
State tax provision, net of federal benefit......... (4.6) (4.6)
Increase in valuation allowance..................... 38.6 38.6
----- -----
Effective tax rate.................................... --% --%
===== =====
</TABLE>
(5) COMMITMENTS AND CONTINGENCIES
(a) Line-of-Credit with a Financial Institution
In June 1999, the Company entered into a working capital credit facility
agreement with a financial institution, which expires on June 30, 2000 and is
automatically renewable for additional one-year terms. Under the working capital
line-of-credit, the Company may borrow up to the lesser of
F-12
<PAGE> 72
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
$5,000,000 or the sum of 80% of eligible accounts receivable, as defined, and
$1,000,000. Borrowings bear interest at the LIBOR rate (5.19% at July 31, 1999)
plus 4.875%. The working capital line-of-credit is collateralized by
substantially all assets of the Company. The agreement contains certain
covenants, with which, as of July 31, 1999, the Company was in full compliance.
As of July 31, 1999, there were no amounts outstanding under the working capital
line-of-credit and approximately $2,582,000 was available for borrowing.
(b) Leases
The Company leases its facility and certain equipment and furniture under
operating lease agreements that expire at various dates through October 2001.
Included in the accompanying statements of operations is rent expense for the
leased facility and equipment of approximately $0, $55,000, $28,000 and $55,000
for the period from incorporation (October 15, 1997) to January 31, 1998, for
the year ended January 31, 1999 and for the six months ended July 31, 1998 and
1999, respectively.
Future minimum lease payments under the operating lease agreements are
approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000..................................... $232,000
2001..................................... 205,000
2002..................................... 22,000
--------
$459,000
========
</TABLE>
(c) Litigation
In May 1998, the former employer of three of the Company's executive
officers and one key employee filed a lawsuit against the Company, the three
executive officers and the key employee. The former employer claims in substance
that the Company's President and Chief Executive Officer breached his fiduciary
obligations to his former employer by misappropriating alleged trade secrets,
commencing a rival concern and interfering with employment relationships by
soliciting other employees to join the Company while employed by their former
employer; that the Company's Vice President, Worldwide Sales and Marketing
breached his fiduciary obligations to his former employer by assisting the
Company's President and Chief Executive Officer in these activities; that the
other individuals allegedly misappropriated alleged trade secrets; and that the
Company misappropriated alleged trade secrets and allegedly interfered with
employment relationships. The claims seek injunctive relief and compensatory
damages in an amount to be determined and punitive damages in excess of
$10,000,000. Management denies all allegations and believes that it has
meritorious defenses to all claims and intends to vigorously defend its
positions. It is not possible to predict the outcome of this litigation.
Regardless of the outcome, this litigation will continue to result in
significant expenses and may divert the efforts and attention of the Company's
management from normal business operations and may have a material adverse
impact on the Company's business, financial condition or results of operations.
In connection with this lawsuit, the Company has recorded as expense $416,717,
$0 and $989,392 for the fiscal year ended January 31, 1999 and the six months
ended July 31, 1998 and 1999, respectively, which is included in general and
administrative expenses in the accompanying statements of operations.
F-13
<PAGE> 73
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
(6) STOCKHOLDERS' EQUITY
(a) Convertible Preferred Stock
The Company has authorized the issuance of 13,000,000 shares of convertible
preferred stock (the Preferred Stock), $.001 par value, of which 4,000,000,
4,761,905, and 3,174,603 shares have been designated as Series A, Series B and
Series C Preferred Stock, respectively. At July 31, 1999, 1,063,492 shares of
preferred stock are undesignated for a particular series.
In January 1998, the Company issued 4,000,000 shares of Series A
convertible preferred stock for gross proceeds of approximately $7,000,000. In
August 1998, the Company issued 2,380,953 shares of Series B convertible
preferred stock for gross proceeds of approximately $5,000,000. In February
1999, the Company issued the remaining 2,380,952 shares of Series B convertible
preferred stock for gross proceeds of approximately $5,000,000. In August 1999,
the Company issued 1,195,238 shares of Series C convertible preferred stock for
gross proceeds of approximately $3,765,000.
The rights, preferences and privileges of the Preferred Stock are as
follows:
VOTING RIGHTS
Each holder of outstanding shares of Preferred Stock shall be entitled
to the number of votes equal to the number of whole shares of Class A
common stock into which the shares of Series A, B and C Preferred Stock are
then convertible.
DIVIDENDS
The holders of the Series A, B and C Preferred Stock shall be entitled
to receive dividends of $0.14, $0.168 and $0.252 per share per annum,
respectively, payable when and if declared by the Board of Directors of the
Company. There were no dividends declared payable by the Board of Directors
during the fiscal years ended January 31, 1998 and 1999 or the six months
ended July 31, 1999.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, winding up
or dissolution of the Company, the holders of the Company's Preferred Stock
then outstanding are entitled to be paid out of the assets of the Company
before any payment is made to common stockholders. The Series A, B and C
preferred stockholders are entitled to be paid at a rate of $1.75, $2.10
and $3.15 per share, respectively, plus any declared but unpaid dividends.
In addition, the preferred stockholders are entitled to a liquidation
dividend of an amount equal to 8% of the original issuance price for each
year that the shares have been outstanding.
After payment of all preferential amounts required to be paid to
holders of the Preferred Stock as set forth above, upon the involuntary
liquidation, winding up or dissolution of the Company, the remaining assets
and funds of the Company will be distributed solely to the holders of the
common stock.
F-14
<PAGE> 74
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
CONVERSION
Each share of Series A, B and C Preferred Stock is convertible, at the
option of the holder, at any time into one share of common stock, subject
to adjustment based on certain defined events.
Shares of Preferred Stock will convert into Class A common stock,
provided that the conversion shall not cause the holder to possess greater
than 49.9% of the total Class A common stock then outstanding and any
additional shares shall convert to Class B common stock.
In connection with the sale of shares of common stock in a public
offering, resulting in at least $20,000,000 of net proceeds to the Company
and a $6.30 per share price to the public, all outstanding shares of
Preferred Stock shall automatically be converted into shares of common
stock.
(b) Common Stock
The Company has authorized the issuance of up to 33,000,000 shares of
common stock, $.001 par value, of which 26,000,000 and 7,000,000 shares have
been designated as Class A and Class B, respectively. The voting, dividend and
liquidation rights of the holders of the common stock are subject to, and
qualified by, the rights of the holders of the Preferred Stock. The Company has
reserved 3,990,000 shares of common stock to be issued as either restricted
stock awards or stock options under the 1998 Stock Incentive Plan discussed in
Note 6(c). An additional 4,000,000, 4,761,905 and 3,174,603 shares of common
stock have been reserved for issuance upon the conversion of the Series A, B and
C Preferred Stock, respectively.
The holders of the Class A common stock shall be entitled to vote on all
corporate matters, and the holders of the Class B common stock shall not be
entitled to vote for any such matters except changes and amendments to the Class
B shareholder rights and preferences.
In connection with the Company's proposed initial public offering, all
issued and outstanding shares of Class A and Class B common stock will be
converted to a new single class of common stock.
The Company issued 2,010,000 shares of Class A common stock, which were not
part of the 1998 Stock Incentive Plan, to a founder of the Company and to
several private investors in January 1998. Of these shares, 950,000 were issued
to a founder of the Company in exchange for a full recourse note receivable (see
Note 3).
During the fiscal year ended January 31, 1999, the Company issued an
additional 1,686,000 shares of Class A restricted common stock pursuant to the
1998 Stock Incentive Plan. Of these shares, 800,000 were issued to three
founders of the Company in exchange for full recourse notes receivable (see Note
3). These shares all vest ratably on a monthly basis over a three-year period;
unvested shares are subject to the right of repurchase by the Company at the
original sales price of the shares.
During the six months ended July 31, 1999, the Company issued an additional
390,000 shares of Class A restricted common stock pursuant to the 1998 Stock
Incentive Plan. Of these shares, 187,500 were issued to several officers of the
Company in exchange for full recourse notes receivable (see Note 3). These
shares all vest over a three-year period; unvested shares are subject to the
right of repurchase by the Company at the original sales price of the shares.
F-15
<PAGE> 75
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
As of July 31, 1999, a total of 1,250,472 shares of Class A restricted
common stock are subject to the right of repurchase by the Company.
(c) Stock Option Plan
In February 1998, the Company adopted the 1998 Stock Incentive Plan (the
Plan), pursuant to which up to 3,990,000 shares of common stock may be issued
over a 10-year period. Under the Plan, the Company may grant both incentive
stock options and nonqualified stock options, as well as award or sell shares of
common stock to employees, directors or outside consultants of the Company. All
option grants, prices and vesting periods are determined by the Board of
Directors. Incentive stock options may be granted at a price not less than 100%
of the fair market value of the common stock on the date of grant and not less
than 110% of the fair market value for a stockholder holding more than 10% of
the Company's voting common stock.
All stock option activity under the Plan for the fiscal years ended January
31, 1998 and 1999 and for the six months ended July 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE PRICE
------- -------------- --------------
<S> <C> <C> <C>
Granted.................................. 435,250 $ .175 $.175
------- ----------- -----
Outstanding, January 31, 1999.............. 435,250 .175 .175
Granted (unaudited)...................... 413,750 .175-1.00 .41
Exercised (unaudited).................... (20,062) .175 .175
Canceled (unaudited)..................... (12,161) .175 .175
------- ----------- -----
Outstanding, July 31, 1999 (unaudited)..... 816,777 $ .175-1.00 $ .29
======= =========== =====
Exercisable, January 31, 1999.............. -- $ -- $ --
======= =========== =====
Exercisable, July 31, 1999 (unaudited)..... 25,105 $ .175 $.175
======= =========== =====
</TABLE>
During August 1999, the Company granted options for the purchase of 98,500
shares of common stock at an exercise price of $1.00 per share.
The following table summarizes certain information relating to the
outstanding and exercisable options as of July 31, 1999 (unaudited):
<TABLE>
<CAPTION>
OUTSTANDING
- ----------------------------------------------------
WEIGHTED EXERCISABLE
AVERAGE --------------------------
RANGE REMAINING WEIGHTED WEIGHTED
OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE OF LIFE EXERCISE OF EXERCISE
PRICES SHARES (YEARS) PRICE SHARES PRICE
- -------- --------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$.175 700,277 9.3 $.175 25,105 $.175
1.00 116,500 9.9 1.00 -- --
------- ------
816,777 25,105
======= ======
</TABLE>
F-16
<PAGE> 76
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
In connection with certain issuances of Class A restricted common stock and
stock option grants during the six months ended July 31, 1999, the Company
recorded deferred compensation of $754,156, which represents the aggregate
difference between the exercise or sale price and the fair market value of the
common stock as determined for accounting purposes. The deferred compensation
will be recognized as an operating expense over the vesting period of the
restricted common stock and the underlying stock options. The Company recorded
compensation expense of $38,345 in the six months ended July 31, 1999 related to
these restricted shares and options. In addition, the Company will record
additional deferred compensation of approximately $1,202,000 related to the sale
of 120,000 shares of Class A restricted common stock and to the grant of 98,500
options in August 1999, which also will be recognized as an operating expense
over the vesting period of the restricted common stock and the underlying stock
options.
(d) Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value of stock
options to employees to be included in the statements of operations or disclosed
in the notes to financial statements. The Company accounts for stock-based
compensation for its employees under Accounting Principles Board (APB) Opinion
No. 25 and elected the disclosure-only alternative under SFAS No. 123, which
requires disclosure of the pro forma effects on earnings as if the
fair-value-based method of accounting under SFAS No. 123 had been adopted, as
well as certain other information.
The Company has computed the pro forma disclosures required under SFAS No.
123 for options granted in fiscal 1999 and the six months ended July 31, 1998
and 1999 using the Black-Scholes option pricing model prescribed by SFAS No.
123. The weighted average information and assumptions used for the grants is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JULY 31,
JANUARY 31, --------------------------
1999 1998 1999
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Risk-free interest rates...................... 4.18-5.52% 5.47-5.52% 5.01-6.02%
Expected dividend yield....................... - - -
Volatility factor............................. - - -
Expected lives................................ 7 years 7 years 7 years
Weighted average fair value of options
granted..................................... $.05 $.06 $2.57
Weighted average remaining contractual life of
outstanding options......................... 9.6 years 9.9 years 9.4 years
</TABLE>
F-17
<PAGE> 77
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
Had compensation expense for the Plan been determined consistent with SFAS
No. 123, the Company's net loss and basic and diluted net loss per share would
have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JULY 31,
JANUARY 31, --------------------------
1999 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net loss --
As reported.......................... $(8,272,541) $(2,727,509) $(7,641,914)
Pro forma............................ (8,274,806) (2,727,744) (7,695,590)
Basic and diluted net loss per share --
As reported.......................... (2.70) (1.13) (1.91)
Pro forma............................ (2.70) (1.13) (1.93)
</TABLE>
Because additional option grants are expected to be made in future periods,
the above pro forma disclosures may not be representative of pro forma effects
on results for future periods.
(7) ACCRUED EXPENSES
Accrued expenses in the accompanying balance sheets consist of the
following:
<TABLE>
<CAPTION>
JANUARY 31,
---------------------- JULY 31,
1998 1999 1999
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation........................ $622,788 $ 654,430 $ 691,875
Professional fees........................... -- 380,449 343,500
Sales tax................................... -- -- 132,018
Other....................................... 1,804 109,824 88,024
-------- ---------- ----------
$624,592 $1,144,703 $1,255,417
======== ========== ==========
</TABLE>
(8) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan covering all employees of the Company who
have met certain eligibility requirements. Under the terms of the 401(k) plan,
the employees may elect to make tax-deferred contributions to the 401(k) plan.
In addition, the Company may match employee contributions, as determined by the
Board of Directors, and may make a discretionary contribution to the 401(k)
plan. No matching or discretionary contributions have been made to the 401(k)
plan in any period.
F-18
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the common stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $12,788
NASD filing fee............................................. 5,100
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer agent and registrar fees and expenses..............
Director and officer insurance..............................
-------
Miscellaneous...............................................
-------
Total............................................. $
=======
</TABLE>
SkillSoft will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and SkillSoft's Certificate of
Incorporation provide for indemnification of SkillSoft's directors and officers
for liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of SkillSoft and, with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
The Underwriting Agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of SkillSoft against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
In addition, SkillSoft has purchased a directors and officers liability
insurance policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement,
SkillSoft has sold the following securities that were not registered under the
Securities Act:
1. On December 10, 1997, SkillSoft issued and sold 1,900,000 shares of
its common stock to Mr. Moran for an aggregate purchase price of $332,500.
This issuance was made pursuant to Section 4(2) of the Securities Act.
2. On December 10, 1997, SkillSoft issued and sold an aggregate of
110,000 shares of its common stock to two purchasers for an aggregate
purchase price of $19,250. This issuance was made pursuant to Section 4(2)
of the Securities Act.
II-1
<PAGE> 79
3. On January 8, 1998, SkillSoft issued and sold an aggregate of
4,000,000 shares of its Series A preferred stock to two purchasers for an
aggregate purchase price of $7,000,000. These issuances were made pursuant
to Section 4(2) of the Securities Act.
4. On August 14, 1998 and February 16, 1999, SkillSoft issued and sold
an aggregate of 4,761,905 shares of its Series B preferred stock to
Warburg, Pincus Ventures, L.P. for an aggregate purchase price of
$10,000,000. These issuances were made pursuant to Section 4(2) of the
Securities Act.
5. On August 5, 1999, SkillSoft issued and sold an aggregate of
1,195,238 of its Series C preferred stock to five purchasers for an
aggregate purchase price of $3,765,000. These issuances were made pursuant
to Section 4(2) of the Securities Act.
6. Between June 19, 1998 and September 1, 1999, SkillSoft issued a
total of 2,231,874 shares of common stock to thirteen persons under its
1998 Stock Incentive Plan for purchase prices between $0.175 and $1.00 per
share. These shares were issued in reliance upon the exemption from
registration under Rule 701 promulgated under the Securities Act.
No underwriters were involved in the foregoing sales of securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Amended and Restated Certificate of Incorporation of
SkillSoft.
3.02* Form of Certificate of Amendment to Certificate of
Incorporation of SkillSoft (to be filed prior to closing of
the public offering).
3.03* Form of Amended and Restated Certificate of Incorporation of
SkillSoft (to be filed following the closing of this public
offering).
3.04* By-Laws of SkillSoft.
4.01* Specimen Certificate for shares of SkillSoft's Common Stock.
5.01* Legal Opinion of Hale and Dorr LLP.
10.01 1998 Stock Incentive Plan, as amended.
10.02* 1999 Non-Employee Director Stock Option Plan.
10.03 Employment Agreement between SkillSoft and Charles E. Moran
10.04 Security Agreement and Secured Promissory Note between
SkillSoft and Charles E. Moran, each dated December 10,
1997.
10.05 Employment Agreement dated January 12, 1998 between
SkillSoft and Mark A. Townsend.
10.06 Employment Agreement dated February 2, 1998 between
SkillSoft and Thomas J. McDonald.
10.07 Employment Agreement dated April 9, 1998 between SkillSoft
and Jerald A. Nine.
10.08 Amended and Restated Registration and Investor Rights
Agreement dated August 5, 1999 between SkillSoft and the
Investors named therein.
21.01 Subsidiaries.
</TABLE>
II-2
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<C> <S>
23.01* Consent of Hale and Dorr LLP (included in Exhibit 5.01).
23.02 Consent of Arthur Andersen LLP.
24.01 Power of Attorney (included on Page II-4).
27.01 Financial Data Schedule.
27.02 Financial Data Schedule.
27.03 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser, (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497 (h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Nashua, New Hampshire
on September 9, 1999.
SKILLSOFT CORPORATION
By: /s/ CHARLES E. MORAN
------------------------------------
Charles E. Moran
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
AND SIGNATURES
We, the undersigned officers and directors of SkillSoft Corporation hereby
severally constitute and appoint Charles E. Moran, Thomas J. McDonald, Patrick
J. Rondeau and Scott E. Pueschel and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, with full powers of
substitution and resubstititon, to sign for us and in our names in the
capacities indicated below, the Registration statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement on Form S-1 filed herewith and any and all pre-effective
and post effective amendment to said Registration Statement, and any subsequent
Registration statement for the same offering which may be filed under Rule
462(b), and generally to do all such things in our names and on our behalf in
our capacities as officers and directors to enable SkillSoft Corporation to
comply with the provision of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney, or any of
them, or their substitute or substitutes, to said Registration Statement and any
and all amendments thereto or to any subsequent Registration Statement for the
same offering which may be file under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ CHARLES E. MORAN President, Chief Executive Officer September 9, 1999
- --------------------------------------------------- and Chairman of the Board
Charles E. Moran (Principal Executive Officer)
/s/ THOMAS J. MCDONALD Chief Financial Officer (Principal September 9, 1999
- --------------------------------------------------- Financial and Accounting Officer)
Thomas J. McDonald
/s/ STEWART K.P. GROSS Director September 9, 1999
- ---------------------------------------------------
Stewart K.P. Gross
/s/ C. SAMANTHA CHEN Director September 9, 1999
- ---------------------------------------------------
C. Samantha Chen
/s/ JAMES ADKISSON Director September 9, 1999
- ---------------------------------------------------
James Adkisson
/s/ WILLIAM T. COLEMAN III Director September 9, 1999
- ---------------------------------------------------
William T. Coleman III
</TABLE>
II-4
<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Amended and Restated Certificate of Incorporation of
SkillSoft.
3.02* Form of Certificate of Amendment to Certificate of
Incorporation of SkillSoft (to be filed prior to closing of
the public offering).
3.03* Form of Amended and Restated Certificate of Incorporation of
SkillSoft (to be filed following the closing of this public
offering).
3.04* By-Laws of SkillSoft.
4.01* Specimen Certificate for shares of SkillSoft's Common Stock.
5.01* Legal Opinion of Hale and Dorr LLP.
10.01 1998 Stock Incentive Plan, as amended.
10.02* 1999 Non-Employee Director Stock Option Plan.
10.03 Employment Agreement between SkillSoft and Charles E. Moran
10.04 Security Agreement and Secured Promissory Note between
SkillSoft and Charles E. Moran, each dated December 10,
1997.
10.05 Employment Agreement dated January 12, 1998 between
SkillSoft and Mark A. Townsend.
10.06 Employment Agreement dated February 2, 1998 between
SkillSoft and Thomas J. McDonald.
10.07 Employment Agreement dated April 9, 1998 between SkillSoft
and Jerald A. Nine.
10.08 Amended and Restated Registration and Investor Rights
Agreement dated August 5, 1999 between SkillSoft and the
Investors named therein.
21.01 Subsidiaries.
23.01* Consent of Hale and Dorr LLP (included in Exhibit 5.01).
23.02 Consent of Arthur Andersen LLP.
24.01 Power of Attorney (included on Page II-4).
27.01 Financial Data Schedule.
27.02 Financial Data Schedule.
27.03 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.01
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SKILLSOFT CORPORATION
Pursuant to Sections 242 and 245
of the General Corporation Law of the State of
Delaware
-----------------------------------------------
SkillSoft Corporation (the "Corporation"), a Corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law") having filed its original Certificate
of Incorporation with the Secretary of State of the State of Delaware on October
15, 1997, does hereby certify as follows:
The following resolutions amending and restating the Corporation's
Certificate of Incorporation were duly authorized and directed by a resolution
adopted by the Board of Directors of this Corporation in accordance with the
provisions of Section 242(b)(1) of the General Corporation Law of the State of
Delaware.
The following resolutions amending and restating the Corporation's
Certificate of Incorporation has been duly approved, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware, by the written consent of the holders of a majority of those shares
entitled to vote thereon, and written notice of such action has been given to
the holders of such shares who did not so consent, each in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware,
The Certificate of Incorporation of the Corporation is hereby amended
and restated in its entirety as follows:
FIRST: The name of the Corporation is SkillSoft Corporation
(hereinafter called the "Corporation").
SECOND: The address, including street, number, city, and
county, of the registered office of the Corporation in the State of Delaware is
1209 Orange Street, City of Wilmington, County of New Castle, Zip Code 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business and the purposes to be
conducted and promoted by the Corporation shall be: To conduct any lawful
business, to promote any lawful
1
<PAGE> 2
purpose, and to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH:
A. CLASSES OF STOCK.
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares of Common Stock that the Corporation is authorized to issue is
33,000,000 shares, with a par value of $.001, of which 26,000,000 shares shall
be designated Class A Common Stock and 7,000,000 shares shall be designated
Class B Common Stock. The term "Common Stock" shall hereinafter refer to both
Class A Common Stock and Class B Common Stock. The total number of shares of
Preferred Stock that the Corporation is authorized to issue is 18,000,000
shares, with a par value of $.001, of which 4,000,000 shares shall be designated
Series A Preferred Stock and 4,761,905 shares shall be designated Series B
Preferred Stock and 3,174,603 shares shall be designated Series C Preferred
Stock.
Upon the filing of this Amended and Restated Certificate of
Incorporation, any outstanding share of Common Stock will be converted into one
share of Class A Common Stock.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK.
The Preferred Stock may be issued from time to time in series. The
rights, preferences, privileges, and restrictions granted to and imposed on the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
are as set forth below in this Part B.
The Board of Directors is hereby authorized to fix or alter the rights,
preferences, privileges and restrictions granted to or imposed upon additional
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or any of them. Subject to compliance with
applicable protective voting rights as set forth in Section 7 hereof which have
been or may be granted to Preferred Stock or series thereof in Certificates of
Determination or the Corporations' Certificate of Incorporation ("Protective
Provisions"), the rights, privileges, preferences and restrictions of any such
additional series may be subordinate to, PARI PASSU with (including, without
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent)
or senior to any of those of any present or future class or series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also authorized to increase or decrease the number of
shares of any series (other than Series A, Series B and Series C Preferred
Stock), prior or subsequent to the issue of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which
2
<PAGE> 3
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
The rights, preferences, restrictions and other matters relating to the
Series A, Series B and Series C and Preferred Stock are as follows:
1. DIVIDEND PROVISIONS.
(a) Subject to the provisions for adjustment
hereinafter set forth, the holders of shares of Series A, Series B and Series C
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock of this Corporation)
on the Common Stock of this Corporation, in an amount per share equal to $0.14,
$0.168 and $0.252 per annum (as adjusted to reflect any stock split, stock
dividend, combination, recapitalization and the like (collectively, a
"Recapitalization") with respect to the Series A, Series B and Series C
Preferred Stock), respectively, when, as and if declared by the Board of
Directors. Dividends on the Series A, Series B and Series C Preferred Stock,
when and if declared, shall be paid pro rata to the holders of such shares on
the basis of the relative preference to which each such series is entitled. Such
dividends shall not be cumulative.
(b) After satisfaction in full of the following
preference of the Series A, Series B and Series C Preferred, the Board of
Directors of the Corporation may declare dividends upon the Common Stock of the
Corporation out of any assets legally available therefor, provided that a pro
rata dividend also be declared on the Series A, Series B and Series C Preferred
Stock out of assets legally available therefor, based on the number of shares of
Common Stock into which the Series A, Series B and Series C Preferred Stock
shall then be convertible.
(c) Notwithstanding Section 1(a) and Section
2(a) hereof, the Corporation may at any time, out of funds legally available
therefor, repurchase shares of Common Stock of the Corporation (i) issued to or
held by employees, directors or consultants of the Corporation or its
subsidiaries upon termination of their employment or services, pursuant to any
agreement providing for such right of repurchase at cost, or (ii) issued to or
held by any person subject to the Corporation's right of first refusal to
purchase such shares where the purchase is pursuant to the exercise of such
right of first refusal, in either case whether or not dividends on the Preferred
Stock shall have been declared and paid or funds set aside therefor.
2. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
distributions shall be made to the holders of Preferred Stock in respect of such
Preferred Stock before any amount shall be paid to the holders of Common Stock
in respect of such Common Stock, in the following manner:
3
<PAGE> 4
(a) PREFERRED STOCK PREFERENCE. The holders of
Series A Preferred Stock shall be entitled to receive an amount per share equal
to $1.75 for each outstanding share of Series A Preferred Stock (the "Original
Series A Issue Price") plus the sum of (i) all declared but unpaid dividends
thereon and (ii) an amount (the "Series A Payment") equal to 8%
(non-compounding) of the Original Series A Issue Price for each full year from
the date of issuance that such share has been outstanding plus a pro rata
portion of such 8% for the portion of any additional year such share has been
outstanding. The holders of Series B Preferred Stock shall be entitled to
receive an amount per share equal to $2.10 for each outstanding share of Series
B Preferred Stock (the "Original Series B Issue Price") plus the sum of (i) all
declared but unpaid dividends thereon and (ii) an amount (the "Series B
Payment") equal to 8% (non-compounding) of the Original Series B Issue Price for
each full year from the date of issuance that such share has been outstanding
plus a pro rata portion of such 8% for the portion of any additional year such
share has been outstanding. The holders of Series C Preferred Stock shall be
entitled to receive an amount per share equal to $3.15 for each outstanding
share of Series C Preferred Stock (the "Original Series C Issue Price") plus the
sum of (i) all declared but unpaid dividends thereon and (ii) an amount (the
"Series B Payment") equal to 8% (non-compounding) of the Original Series B Issue
Price for each full year from the date of issuance that such share has been
outstanding plus a portion of such 8% for the portion of any additional year
such share has been outstanding. If upon the occurrence of a liquidation,
dissolution or winding up of the Corporation, the assets and funds thus
distributed among the holders of the Series A, Series B and Series C Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A, Series B and Series C Preferred Stock in
proportion to the aggregate preferential amounts owed to each such holder. After
the distributions described above have been paid to any holders of unconverted
Preferred Stock, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed solely among the holders of
Common Stock pro rata based on the number of shares of Common Stock held by
each.
(b) EVENTS DEEMED A LIQUIDATION. For purposes of
this Section 2, a liquidation, dissolution or winding up of the Corporation
shall be deemed to be occasioned by and to include the reorganization or merger
of the Corporation with or into any other corporation or the sale by the
Corporation of all or substantially all of its assets (or any series of related
transactions resulting in the sale or other transfer of all or substantially all
of its assets) (such a reorganization, merger or sale may sometimes be referred
to herein as a "Change in Control") unless the Corporation's stockholders of
record immediately prior to such reorganization or merger own more than 50% of
the equity securities of the surviving corporation or its parent immediately
after such reorganization or merger (for the purpose of this calculation equity
securities owned by any stockholder of the Corporation following such
transaction in respect of securities held by such stockholder immediately prior
to such merger or reorganization as an equity holder of another party to the
transaction shall be disregarded).
4
<PAGE> 5
(c) VALUATION OF SECURITIES AND PROPERTY. In the
event the Corporation proposes to distribute assets other than cash in
connection with any liquidation, dissolution or winding up of the Corporation,
the value of the assets to be distributed to the holders of shares of Preferred
Stock and Common Stock shall be determined in good faith by the Board. Any
securities not subject to investment letter or similar restrictions on free
marketability shall be valued as follows:
(i) If traded on a securities exchange
or the Nasdaq National Market, the value shall be deemed to the average of the
security's closing prices on such exchange or market over the thirty (30) day
period ending three (3) days prior to the distribution;
(ii) If actively traded over-the-
counter, the value shall be deemed to be the average of the closing bid prices
over the thirty (30) day period ending three (3) days prior to the distribution;
and
(iii) If there is no active public
market, the value shall be the fair market value thereof as determined in good
faith by the Board.
The method of valuation of securities subject to investment letter or other
restrictions on free marketability (except restrictions on the marketability of
shares held by affiliates of the Corporation related to accounting for a
combination of the Corporation on a pooling of interests basis) shall be
adjusted to make an appropriate discount from the public market value determined
as above in clauses (i), (ii) or (iii) to reflect the fair market value thereof,
as determined in good faith by the Board. The holders of at least 50% of the
outstanding Preferred Stock shall have the right to challenge any determination
by the Board of fair market value pursuant to this Section 2(c), in which case
the determination of fair market value shall be made by an independent appraiser
selected jointly by the Board and the challenging parties, the cost of such
appraisal to be borne equally by the Corporation and the challenging parties.
(d) The Corporation shall give each holder of
record of Series A, Series B and Series C Preferred Stock written notice of any
impending transaction which would constitute a liquidation, dissolution or
winding up of the Corporation for the purposes of this Section 2 not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this paragraph IV(B)(2), and the Corporation shall thereafter give such holders
prompt notice of any material changes. The transaction shall in no event take
place sooner than twenty (20) days after the Corporation has given the first
notice provided for herein or sooner than ten (10) days after the Corporation
has given notice of any material changes provided for herein; provided, however,
that such periods may be shortened upon the written consent of the
5
<PAGE> 6
holders of a majority of the voting power represented by all the outstanding
shares of Series A, Series B and Series C Preferred Stock, voting together as a
single class.
3. CONVERSION. The holders of the Series A, Series B and
Series C Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) OPTIONAL CONVERSION.
(i) Each share of Series A, Series B
and Series C Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share at the office of
this Corporation or any transfer agent for such Preferred Stock, into such
number of fully paid and nonassessable shares of Class A Common Stock or Class B
Common Stock as is determined by dividing the Original Issue Price for such
series of Preferred Stock by the Conversion Price (as defined below) at the time
in effect for such share. The initial Conversion Price per share for shares of
Series A, Series B and Series C Preferred Stock shall be the Original Series A
Issue Price, the Original Series B Issue Price and the Original Series C Issue
Price, respectively; provided, however, that the Conversion Prices for the
Series A, Series B and Series C Preferred Stock shall be subject to adjustment
as set forth in Section 3(c). Upon conversion, all declared and unpaid dividends
on the Preferred Stock shall be paid in cash, to the extent legally permitted.
(ii) MECHANICS OF CONVERSION. Before any
holder of Preferred Stock shall be entitled to convert the same into shares of
Common Stock and to receive certificates therefor, he or she shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock and shall give
written notice to the Corporation at such office that he or she elects to
convert the same; provided, however, that in the event of an automatic
conversion pursuant to Section 3(b) hereof, the outstanding shares of Preferred
Stock shall be converted automatically without any further action by the holders
of such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; and provided further that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Class A or Class B Common Stock issuable upon such automatic
conversion unless and until the certificates evidencing such shares of Preferred
Stock are either delivered to the Corporation or its transfer agent as provided
above, or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. The Corporation shall, as
soon as practicable after such delivery, or after such agreement and
indemnification, issue and deliver at such office to such holder of Preferred
Stock, a certificate or certificates for the number of shares of Class A or
Class B Common Stock to which he or she shall be entitled as aforesaid and a
check payable to the holder in the amount of any declared and unpaid dividends
payable pursuant to Section 1(a) hereof, if any. Such conversion shall be deemed
to have been made immediately prior to the close of business on the
6
<PAGE> 7
date of such surrender of the shares of Preferred Stock to be converted, or, in
the case of automatic conversion, immediately prior to the occurrence of the
event leading to such automatic conversion, and the person or persons entitled
to receive the shares of Class A or Class B Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Class A or Class B Common Stock on such date.
(b) AUTOMATIC CONVERSION ON INITIAL PUBLIC
OFFERING. Each share of Preferred Stock shall automatically be converted into
shares of Class A Common Stock, at the Conversion Price at the time in effect
for such series of Preferred Stock immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement filed pursuant to the
Securities Act of 1933, as amended, the public offering price of which is not
less than $6.30 per share (adjusted to reflect subsequent stock dividends, stock
splits, combinations or other recapitalizations) and the proceeds thereof to the
Corporation (net of underwriting commissions and offering expenses) equal or
exceed $20,000,000, provided, however, that if such conversion of any shares of
Preferred Stock into Class A Common Stock will cause the holder thereof and its
affiliates to hold in aggregate greater than 49.9% of the total outstanding
Class A Common Stock, then such shares of Preferred Stock shall be converted
into Class B Common Stock at such Conversion Price to the extent necessary to
ensure that the holder and its affiliates hold in aggregate no more than 49.9%
of the total outstanding Class A Common Stock then outstanding. Any conversion
of Preferred Stock pursuant to this Section 3(b) may, at the option of any
holder tendering Preferred Stock for conversion, be conditioned upon the closing
with the underwriter of the sale of securities pursuant to such offering, in
which event the person(s) entitled to receive the Common Stock issuable upon
such conversion of the Preferred Stock shall not be deemed to have converted
such Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) ADJUSTMENTS TO CONVERSION PRICE.
(i) SPECIAL DEFINITIONS. For purposes
of this Section 3(c), the following definitions shall apply:
(1) "OPTIONS" shall mean
rights, options or warrants to subscribe for, purchase or otherwise acquire
either Common Stock or Convertible Securities.
(2) "CONVERTIBLE SECURITIES"
shall mean any evidences of indebtedness, shares or other securities convertible
into or exchangeable for Common Stock.
(3) "ADDITIONAL SHARES OF
COMMON STOCK" shall mean all shares of Common Stock issued (or, pursuant to
Section 3(c)(iii), deemed to be issued) by the Corporation after the Original
Issue Date, other than shares of Common Stock issued or issuable:
7
<PAGE> 8
(A) upon conversion
of shares of Preferred Stock;
(B) to officers,
directors or employees of, or consultants to, the Corporation pursuant to a
stock grant, option plan or purchase plan or other employee stock incentive
program or agreement approved by the Board, not to exceed 3,990,000 shares net
of repurchases and cancellations and expirations (without exercise) of options,
since the incorporation of the Corporation;
(C) upon approval of
the Board, to lending institutions in connection with debt financings or to
equipment leasing institutions, in an amount not to exceed 1,000,000 shares in
the aggregate;
(D) as a dividend or
distribution on Preferred Stock;
(E) in an event for
which adjustment is otherwise made pursuant to Section 3(c)(vi);
(F) as a dividend on
Common Stock where the Corporation declares or pays a similar Common Stock
dividend per share of Preferred Stock (on an as-converted-into-Common Stock
basis) in the same manner as declared or paid on the Common Stock;
(4) "ORIGINAL ISSUE DATE"
shall mean, with respect to each series of Series A, Series B or Series C
Preferred Stock, the date on which the first share of such series of Preferred
Stock was issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE.
No adjustment in the Conversion Price of a series of Preferred Stock shall be
made in respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the Conversion Price for such
series of Preferred Stock in effect immediately prior to such issue.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON STOCK. In the event the Corporation at any time or from time to time
after the Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities, then
the maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the exercise of such
Options and conversions or exchange of such Convertible Securities shall be
deemed to be Additional Shares of Common Stock issued as
8
<PAGE> 9
of the time of such issue or, in case such a record date shall have been fixed,
as of the close of business on such record date, provided that in any such case
in which Additional Shares of Common Stock are deemed to be issued:
(1) except as provided in
Section 3(c)(iii)(2), no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities; and
(2) if such Options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any change in the consideration payable to the Corporation, or
change in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (other than under or by reason of provisions
designed to protect against dilution), the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto) and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities; and
(3) no readjustment pursuant
to clause (2) above shall have the effect of increasing the Conversion Price to
an amount which exceeds the lower of (A) the Conversion Price on the original
adjustment date or (B) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event this Corporation
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 3(c)(iii)) without
consideration or for a consideration per share less than the Conversion Price of
the Series A, Series B or Series C Preferred Stock in effect on the date of and
immediately prior to such issue (such issuance price being referred to herein as
the "Dilution Price"), then and in each such event the Conversion Price of the
such series of Preferred Stock shall be reduced to a price (calculated to the
nearest cent) determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, for the purposes of
this Section 3(c)(iv), all shares of Common Stock issuable upon conversion of
all outstanding Preferred Stock and all outstanding Options and Convertible
Securities shall be deemed to be outstanding, and, immediately after any
Additional
9
<PAGE> 10
Shares of Common Stock are deemed issued pursuant to Section 3(c)(iii), such
Additional Shares of Common Stock shall be deemed to be outstanding.
(v) DETERMINATION OF CONSIDERATION. For
purposes of this Section 3(c), the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such
consideration shall:
(A) insofar as it
consists of cash, be computed at the aggregate amount of cash received by the
Corporation before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof;
(B) insofar as it
consists of property other than cash, be computed at the fair value thereof at
the time of such issue, as determined by Board in the good faith exercise of its
reasonable business judgment; and
(C) in the event
Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration which converts
both, be the proportion of such consideration so received, computed as provided
in clauses (A) and (B) above, as determined in good faith by the Board.
(2) OPTIONS AND CONVERTIBLE
SECURITIES. The consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued pursuant to Section
3(c)(iii)(1), relating to Options and Convertible Securities, shall be
determined by dividing
(A) the total amount,
if any, received or receivable by the Corporation as consideration for the issue
of such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(B) the maximum
number of shares of Common Stock as set forth in the instruments relating
thereto (without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or their
conversion or exchange of such Convertible Securities.
10
<PAGE> 11
(vi) OTHER ADJUSTMENTS TO
CONVERSION PRICE.
(1) SUBDIVISIONS,
COMBINATIONS, OR CONSOLIDATIONS OF COMMON STOCK. In the event the outstanding
shares of Common Stock shall be subdivided, combined or consolidated, by stock
split, stock dividend, combination or like event, into a greater or lesser
number of shares of Common Stock, the Conversion Price of the Preferred Stock in
effect immediately prior to such subdivision, combination, consolidation or
stock dividend shall, concurrently with the effectiveness of such subdivision,
combination or consolidation, be proportionately adjusted. Notwithstanding the
foregoing, any adjustment of the Conversion Price pursuant to this paragraph (1)
shall not be made if the outstanding shares of Preferred Stock are combined or
consolidated in the same manner and at the same time and ratios as the
outstanding shares of Common Stock.
(2) DISTRIBUTION
OTHER THAN CASH DIVIDENDS OUT OF RETAINED EARNINGS. In case the Corporation
shall declare a cash dividend upon its Common Stock payable otherwise than out
of retained earnings or shall distribute to holders of its Common Stock shares
of its capital stock (other than Common Stock), stock or other securities of
other persons, evidences of indebtedness issued by the Corporation or other
persons, assets (excluding cash dividends) or options or rights (excluding
options to purchase and rights to subscribe for Common Stock or other securities
of the Corporation convertible into or exchangeable for Common Stock), then, in
each such case, the holders of shares of Preferred Stock shall, concurrently
with the distribution to holders of Common Stock, receive a like distribution
based upon the number of shares of Common Stock into which such series of
Preferred Stock is then convertible.
(3) RECLASSIFICATIONS.
In the case, at any time after the date thereof, of any capital reorganization
or any reclassification of the stock of the Corporation (other than as a result
of a stock dividend or subdivision, split-up or combination of shares), or the
consolidation or merger of the Corporation with or into another person (other
than a consolidation or merger in which the Corporation is the continuing entity
and which does not result in any change in the Common Stock or which is treated
as a liquidation pursuant to Section 2(b)), or of the sale or other disposition
of all or substantially all the properties and assets of the Corporation, the
shares of the Preferred Stock shall, after such reorganization,
reclassification, consolidation, merger, sale or other disposition, be
convertible into the kind and number of shares of stock or other securities or
property of the Corporation or otherwise to which such holder would have been
entitled if immediately prior to such reorganization, reclassification,
consolidation, merger, sale or other disposition he had converted his shares of
the Preferred Stock into Common Stock. The provisions of this clause 3(c)(vi)(3)
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
11
<PAGE> 12
(d) CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Conversion Price of the
Preferred Stock pursuant to this Section 3, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A, Series B or Series C Preferred,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Conversion Price of the Series
A, Series B or Series C Preferred at the time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of the Series A, Series B or Series C
Preferred.
(e) STATUS OF CONVERTED STOCK. In case any
shares of Preferred Stock shall be converted pursuant to Section 3 hereof, the
shares of Preferred Stock so converted shall be cancelled, shall not be
reissuable and shall cease to be a part of the authorized capital stock of the
Corporation.
(f) FRACTIONAL SHARES. In lieu of any fractional
shares to which the holder of Preferred Stock would otherwise be entitled upon
conversion, the Corporation shall pay cash equal to such fraction multiplied by
the fair market value of one share of Common Stock as determined by the Board.
The number of whole shares issuable to each holder upon such conversion shall be
determined on the basis of the number of shares of Common Stock issuable upon
conversion of the total number of shares of Preferred Stock held by such holder
at the time of converting into Common Stock.
(g) MISCELLANEOUS.
(i) All calculations under this Section
3 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a
share, as the case may be.
(ii) No adjustment in the Conversion
Price of the Preferred Stock need be made if such adjustment would result in a
change in such Conversion Price of less than $0.01. Any adjustment of less than
$0.01 which is not made shall be carried forward and shall be made at the time
of and together with any subsequent adjustment which, on a cumulative basis,
amounts to an adjustment of $0.01 or more in such Conversion Price.
(h) NO IMPAIRMENT. The Corporation will not
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance of performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 3
and
12
<PAGE> 13
in the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of Preferred Stock against
impairment.
(i) RESERVATION OF STOCK ISSUABLE UPON
CONVERSION. The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Preferred Stock. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then-outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
4. VOTING RIGHTS. Except as otherwise required by law or
by Section 7 hereof and subject to the provisions of Section 4(a) below, the
holder of each share of Class A Common Stock issued and outstanding shall have
one vote, and the holder of each share of Preferred Stock issued and outstanding
shall be entitled to the number of votes equal to the number of shares of Class
A Common Stock into which such share of Preferred Stock could be converted at
the record date for determination of the stockholders entitled to vote on such
matters, or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited, such votes to be
counted together with all other shares of stock of the Corporation having
general voting power and not separately as a class. Fractional votes by the
holders of Preferred Stock shall not, however, be permitted, and any fractional
voting rights shall (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) be rounded to the nearest whole
number.
(a) At each annual election of directors of the
Corporation, the holders of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock shall be entitled, voting together as a
single class, to elect two (2) directors of the Corporation, PROVIDED, HOWEVER,
that in no event shall such holders be entitled to elect greater than half the
total number of directors. The holders of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall not otherwise be entitled to
vote on the election of directors. In the case of any vacancy in the office of a
director elected by the holders of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, a successor shall be elected to
hold office for the unexpired term of such director by the affirmative vote of
the holders of the Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock, voting as a single class, given at a special meeting of such
stockholders duly called for that purpose or by the majority written consent of
such stockholders. Except for a vacancy created by the removal of a director as
provided below and prior to an annual or special meeting of the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
convened for the purpose of electing a director to fill a vacancy on the Board
of Directors as provided above, the acting and incumbent director previously
elected pursuant to this Section 4(a) may appoint a director to
13
<PAGE> 14
serve until the holders of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock duly elect a successor director. Any director
who shall have been elected by the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock may be removed during the
aforesaid term of office, either for or without cause, by, and only by, the
affirmative vote of the holders of that percentage of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock required by Section
303(a) of the Delaware Corporations Code, given at a special meeting of such
stockholders duly called for that purpose or by the unanimous written consent of
such stockholders, and any such vacancy thereby created may be filled by the
holders of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock represented at such meeting or by such unanimous written
consent.
5. NOTICES OF RECORD DATE. In the event of any taking by
the Corporation of any action enumerated in Section 7 hereof or of a record of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Preferred Stock, at least thirty (30) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
from the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
6. NOTICES. Any notice required by the provisions of the
Certificate to be given to the holders of Preferred Stock shall be deemed given
when deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his or her address appearing on the books of this
Corporation.
7. PREFERRED STOCK PROTECTIVE PROVISIONS.
(a) Notwithstanding any other provision in this
Certificate, so long as any shares of Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval of the holders of
sixty percent (60%) of the then-outstanding shares of Series A, Series B and
Series C Preferred Stock, voting together as a single class, take any action
that:
(i) increases the authorized number of
directors of the Corporation to a number greater than six;
(ii) results in the consolidation or
merger with or into any other corporation or the sale of all or substantially
all of the assets of this Corporation (or any series of related transactions
resulting in the sale or other transfer of all or substantially all of the
assets of this Corporation);
(iii) declares any dividend on the
Company's Common Stock; or
14
<PAGE> 15
(iv) creates any new class of shares
that has a preference over or is on a parity with any series of Preferred Stock
with respect to voting, dividends or liquidation preferences.
(b) Notwithstanding any other provision in this
Certificate, so long as any shares of a series of Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval of
the holders of sixty percent (60%) of the outstanding shares of the subject
individual series or class of stock, take any action that:
(i) alters the rights, preferences or
privileges of such series or class of Preferred Stock in any manner that affects
adversely and materially such series or class, other than any such action which
alters the rights, preferences or privileges of all series of Preferred Stock on
a pari passu basis which has been approved by holders of sixty percent (60%) of
the then outstanding shares of Preferred Stock voting together as a single
class; or
(ii) increases the authorized number of
shares of any such series of Preferred Stock.
8. REPURCHASE OF SHARES. In connection with repurchases
by this Corporation of its Common Stock pursuant to its agreements with certain
of the holders thereof, Section 502, 503 and 506 of the Delaware General
Corporation Law shall not apply in whole or in part with respect to such
repurchases.
C. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors (subject to Section 7(f) hereof), out of any
assets of the Corporation legally available therefor, such dividends as may be
declared from time to time by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation shall be
distributed as provided in Section 2 of Part B.
3. REDEMPTION. The Common Stock is not redeemable as a matter of
right by any holder thereof.
4. ADJUSTMENTS. No increase or decrease in the number of shares
of Class A or Class B Common Stock due to a stock split, subdivision, split-up,
combination or similar recapitalization event will be made unless an equivalent
increase or decrease is made to the Class B or Class A Common Stock,
respectively.
15
<PAGE> 16
D. CLASS A COMMON STOCK.
In addition to the rights, preferences, privileges and restrictions of
the Common Stock set forth in Part C hereof, the rights, preferences, privileges
and restrictions of the Class A Common Stock shall be as follows:
1. VOTING RIGHTS. The holder of each share of Class A
Common Stock shall have the right to one vote, and shall be entitled to notice
of any stockholders' meeting in accordance with the Bylaws of this Corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.
E. CLASS B COMMON STOCK.
In addition to the rights, preferences, privileges and restrictions of
the Common Stock set forth in Part C hereof, the rights, preferences, privileges
and restrictions of the Class B Common Stock shall be as follows:
1. VOTING RIGHTS. Holders of Class B Common Stock shall
not be entitled to vote such shares for the election of directors or on any
other matter except changes or amendment to this Division E except as otherwise
required by law; provided, however, that no such change or amendment shall
increase the rights of or, under any circumstances, provide additional voting
rights to the holders of Class B Common Stock.
2. CONVERSION.
(a) RIGHT TO CONVERT. The holder of any shares of Class B Common
Stock shall have the right at such holder's option, at any time or from time to
time, to convert any shares of Class B Common Stock held by such holder into one
share of Class A Common Stock for each share of Class B Common Stock so
converted upon surrender of the certificates representing the shares of Class B
Common Stock so to be converted in the manner provided in Division E(2)(c)
hereof; provided, however, that no such conversion may be effected by any holder
of Class B Common Stock to the extent that as a result thereof the total number
of Voting Shares (as defined in Division E(2)(g)(iv) hereof) held by such holder
or any Affiliate (as defined in Division E(2)(g)(i) hereof) of such holder shall
be greater than or equal to forty-nine and nine-tenths percent (49.9%) (by
voting power) of the total number of Voting Shares then issued and outstanding.
The holder of any shares of Class B Common Stock exercising the aforesaid right
to convert such shares into shares of Class A Common Stock shall be entitled to
payment of all declared but unpaid dividends, if any, payable on or with respect
to such shares of Class B Common Stock up to and including the Conversion Date
(as hereinafter defined).
(b) CONVERSION UPON TRANSFER. Upon any Transfer (as defined in
Division E(2)(g)(iii) hereof) of any shares of Class B Common Stock by the
original holder thereof, other than a Transfer to an Affiliate of such original
holder, such shares of Class B
16
<PAGE> 17
Common Stock so Transferred shall, by virtue of, and simultaneously with, the
occurrence of the Transfer, without any action on the part of the transferee, be
automatically converted into an equal number of fully paid and nonassessable
shares of Class A Common Stock. The holder of any shares of Class B Common Stock
converted into Class A Common Stock pursuant to this Division E(2)(b) shall be
entitled to payment on or with respect to such shares of Class B Common Stock up
to and including the Conversion Date.
(c) MECHANICS OF CONVERSION. The holder of any shares of Class B
Common Stock may exercise the conversion rights pursuant to Division E(2)(a)
hereof as to any part thereof by delivering to the Corporation during regular
business hours, at the office of the Corporation or at such other place as may
be designated by the Corporation, the certificate or certificates for the shares
to be converted, duly endorsed or assigned in blank, accompanied by a written
notice stating that the holder elects to convert such shares and stating the
name or names (with address) in which the certificate or certificates for the
shares of Class A Common Stock are to be issued. Conversion shall be deemed to
have been effected (A) with respect to conversion under Division E(2)(a) hereof,
on the date when the aforesaid delivery is made and (B) with respect to
conversion under Division E(2) hereof, on the date of occurrence of the
Transfer, and such date, in either case, is referred to herein as the
"Conversion Date." As promptly as practicable after the Conversion Date, and in
the case of Division E(2)(b) hereof, upon the delivery to the Corporation during
regular business hours, at the office of the Corporation or at such other place
as may be designated by the Corporation or at such other place as may be
designated by the Corporation, of the certificate or certificates for the shares
to be converted, duly endorsed or assigned in blank, the Corporation shall issue
and deliver to or upon the written order of such holder, to the place designated
by such holder, a certificate or certificates for the number of shares of Class
A Common Stock issuable upon such conversion as provided in Divisions E(2)(a)
and (b) hereof, and a check or cash in payment of all declared but unpaid
dividends (to the extent permissible under law), if any, payable with respect to
the shares of Class B Common Stock so converted up to and including the
Conversion Date. The person in whose name the certificate or certificates for
Class A Common Stock are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a stockholder of record on the next succeeding date on
which the transfer books are open, but the Class B Common Stock Conversion Rate
shall be that in effect on the Conversion Date. Upon conversion of only a
portion of the number of shares covered by a certificate representing shares of
Class B Common Stock surrendered for conversion, the Corporation shall issue and
deliver to or upon the written order of the holder of the certificate as
surrendered for conversion, at the expense of the Corporation, a new certificate
covering the number of shares of Class B Common Stock representing the
unconverted portion of the certificate so surrendered, which new certificate
shall entitle the holder thereof to dividends on the shares of Class B Common
Stock represented thereby to the same extent as if the certificate theretofore
covering such unconverted shares had not been surrendered for conversion.
17
<PAGE> 18
(d) RESERVATION OF SHARES. The Corporation shall at all times when
the Class B Common Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Class B Common Stock, such number of its duly authorized shares of Class
A Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Class B Common Stock; and if at any time the number of
authorized but unissued shares of Class A Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of Class B Common Stock,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Class A
Common Stock to such number of shares as shall be sufficient for the purpose.
(e) DEFINITIONS.
(i) "Affiliate" shall mean, as to any person or entity, a
person or entity that, directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such person or entity.
(ii) "Filing Date" shall mean the date the Corporation
files with the Delaware Secretary of State this Amended and Restated Certificate
of Incorporation.
(iii) "Transfer" or "Transferred" shall mean to dispose,
sell or in any other way directly or indirectly transfer, assign, distribute,
encumber or otherwise dispose of, either voluntarily or involuntarily.
(iv) "Voting Shares" shall mean any shares of the
Corporation's capital stock entitled to vote in any election of directors of the
Corporation.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a
18
<PAGE> 19
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
(a) The management of the business and the
conduct of the affairs of the Corporation shall be vested in its Board of
Directors. Subject to the provisions of Part B, Section 7(a)(i), the number of
directors which shall constitute the whole Board of Directors shall be fixed by,
or in the manner provided in, the Bylaws. The phrase "whole Board" and the
phrase "total number of directors" shall be deemed to have the same meaning, to
wit, the total number of directors which the Corporation would have if there
were no vacancies. No election of directors need be by written ballot.
(b) After the original or other Bylaws of the
Corporation have been adopted, amended, or repealed, as the case may be, in
accordance with the provisions of Section 109 of the General Corporation Law of
the State of Delaware, and, after the Corporation has received any payment for
any of its stock, the power to adopt, amend, or repeal the Bylaws of the
Corporation may be exercised by the Board of directors of the Corporation;
provided, however, that any provision for the classification of directors of the
Corporation for staggered terms pursuant to the provisions of subsection (d) of
Section 141 of the General Corporation Law of the State of Delaware shall be set
forth in an initial Bylaw adopted by the stockholders entitled to vote of the
Corporation unless provisions for such classification shall be set forth in this
Certificate of incorporation.
19
<PAGE> 20
(c) Whenever the Corporation shall be authorized
to issue only one class of stock, each outstanding share shall entitle the
holder thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue more than
one class of stock, no outstanding share of any class of stock which is denied
voting power under the provisions of the Certificate of Incorporation shall
entitle the holder thereto to the right to vote any meeting of stockholders
except as the provisions of paragraph (2) of subsection (b) of Section 242 of
the General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting power
shall entitle the holder thereof to vote upon the increase or decrease in the
number of authorized shares of said class.
EIGHTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the provisions of Paragraph
(7) of subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented.
NINTH: The Corporation shall, to the fullest extent permitted
by the provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such person.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article TENTH.
20
<PAGE> 21
IN WITNESS WHEREOF, SKILLSOFT CORPORATION has caused this Certificate
to be signed by Charles E. Moran, its President, and attested to by Thomas J.
McDonald, its Secretary, this 14th day of August, 1998.
SKILLSOFT CORPORATION
/s/ Charles E. Moran
-------------------------------------
President
ATTEST:
By: /s/ Thomas J. McDonald
------------------------------------
Secretary
21
<PAGE> 1
Exhibit 10.1
SKILLSOFT CORPORATION
1998 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees appointed
to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, applicable state corporate and securities laws, the
Code, the rules of any applicable stock exchange or national market system, and
the rules of any foreign jurisdiction applicable to Awards granted to residents
therein.
(c) "Award" means the grant of an Option, Restricted Stock, or other
right or benefit under the Plan.
(d) "Award Agreement" means the written agreement evidencing the grant
of an Award executed by the Company and the Grantee, including any amendments
thereto.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means any committee appointed by the Board to
administer the Plan.
(h) "Common Stock" means the common stock of the Company.
(i) "Company" means SkillSoft Corporation.
(j) "Consultant" means any person who is engaged by the Company or
Related Entity to render consulting or advisory services as an independent
contractor and is compensated for such services.
(k) "Continuous Status as an Employee, Director or Consultant" means
that the provision of services to the Company or a Related Entity in any
capacity of Employee, Director or Consultant, is not interrupted or terminated.
Continuous Status as an Employee, Director or Consultant shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change
1
<PAGE> 2
in status as long as the individual remains in the service of the Company
or a Related Entity in any capacity of Employee, Director or Consultant (except
as otherwise provided in the Award Agreement). For purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.
(l) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company (including the capital stock of the Company's
subsidiary corporations) in connection with the complete liquidation or
dissolution of the Company; or
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
(m) "Director" means a member of the Board.
(n) "Employee" means any person, including an Officer or Director, who
is an employee of the Company or any Related Entity. The payment of a director's
fee by the Company shall not be sufficient to constitute "employment" by the
Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) Where there exists a public market for Common Stock, the Fair
Market Value shall be (A) the closing price for a Share for the last market
trading day prior to the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a closing price was
reported) on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the Nasdaq National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market of the type described
in (i), above, for the Common Stock, the Fair Market Value thereof shall be
determined by the Administrator in good faith.
2
<PAGE> 3
(q) "Grantee" means an Employee, Director or Consultant who receives an
Award under the Plan.
(r) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(s) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(t) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1998 Stock Incentive Plan.
(x) "Registration Date" means the closing of the first sale of
Common Stock to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(y) "Related Entity" means any Parent, Subsidiary and any business,
corporation, partnership, limited liability company or other entity in which the
Company, a Parent or a Subsidiary holds an ownership interest, directly or
indirectly.
(z) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(aa) "Share" means a share of the Common Stock.
(bb) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 11(a) below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is 4,690,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
(b) If an Award expires or becomes unexercisable without having been
exercised in full, or if any unissued Shares are retained by the Company upon
exercise of an Award in order to satisfy the exercise price for such Award or
any withholding taxes due with
3
<PAGE> 4
respect to such Award, such unissued or retained Shares shall become available
for future grant or sale under the Plan (unless the Plan has terminated). Shares
that actually have been issued under the Plan pursuant to an Award shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are forfeited, or repurchased by
the Company at their original purchase price, such Shares shall become available
for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator. With respect to grants of Awards to Employees,
Directors, Officers or Consultants, the Plan shall be administered by (A) the
Board or (B) a Committee (or a subcommittee of the Committee) designated by the
Board, which Committee shall be constituted in such a manner as to satisfy
Applicable Laws. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. The Board may
authorize one or more Officers to grant Awards and may limit such authority as
the Board determines from time to time.
(b) Powers of the Administrator. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to establish additional terms, conditions, rules or procedures
to accommodate the rules or laws of applicable foreign jurisdictions and to
afford Grantees favorable treatment under such laws; provided, however, that no
Award shall be granted under any such additional terms, conditions, rules or
procedures with terms or conditions which are inconsistent with the provisions
of the Plan;
(vii) to amend the terms of any outstanding Award granted under the
Plan, including a reduction in the exercise price of any Award to reflect a
reduction in the Fair Market Value of the Common Stock since the grant date of
the Award, provided that any amendment that would adversely affect the Grantee's
rights under an outstanding Award shall not be made without the Grantee's
written consent;
4
<PAGE> 5
(viii) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with the terms of
the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions, determinations and
interpretations of the Administrator shall be conclusive and binding on all
persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted to
Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the Plan to
award any type of arrangement to an Employee, Director or Consultant that is not
inconsistent with the provisions of the Plan and that by its terms involves or
might involve the issuance of (i) Shares, (ii) an Option, or similar right with
an exercise or conversion privilege at a fixed or variable price related to the
Common Stock and/or the passage of time, the occurrence of one or more events,
or the satisfaction of performance criteria or other conditions, or (iii) any
other security with the value derived from the value of the Common Stock or
securities issued by a Related Entity. Such awards include, without limitation,
Options, and sales or bonuses of Restricted Stock. An Award may consist of one
such security or benefit, or two or more of them in any combination or
alternative.
(b) Designation of Award. Each Award shall be designated in the Award
Agreement. In the case of an Option, the Option shall be designated as either an
Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of Shares
subject to Options designated as Incentive Stock Options which become
exercisable for the first time by a Grantee during any calendar year (under all
plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options, to the extent of the Shares covered thereby in excess of the foregoing
limitation, shall be treated as Non-Qualified Stock Options. For this purpose,
Incentive Stock Options shall be taken into account in the order in which they
were granted, and the Fair Market Value of the Shares shall be determined as of
the grant date of the relevant Option.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price,
5
<PAGE> 6
earnings per share, total stockholder return, return on equity, return on
assets, return on investment, net operating income, cash flow, revenue, economic
value added, personal management objectives, or other measure of performance
selected by the Administrator. Partial achievement of the specified criteria may
result in a payment or vesting corresponding to the degree of achievement as
specified in the Award Agreement.
(d) Early Exercise. The Award may, but need not, include a provision
whereby the Grantee may elect at any time while an Employee, Director or
Consultant to exercise any part or all of the Award prior to full vesting of the
Award. Any unvested Shares received pursuant to such exercise may be subject to
a repurchase right in favor of the Company or to any other restriction the
Administrator determines to be appropriate.
(e) Term of Award. The term of each Award shall be the term stated in the
Award Agreement, provided, however, that the term shall be no more than ten (10)
years from the date of grant thereof. However, in the case of an Incentive Stock
Option granted to a Grantee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant thereof or such
shorter term as may be provided in the Award Agreement.
(f) Transferability of Awards. Incentive Stock Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Grantee, only by the Grantee; provided, however, that
the Grantee may designate a beneficiary of the Grantee's Incentive Stock Option
in the event of the Grantee's death on a beneficiary designation form provided
by the Administrator. Other Awards shall be transferable to the extent provided
in the Award Agreement.
(g) Time of Granting Awards. The date of grant of an Award shall for all
purposes be the date on which the Administrator makes the determination to grant
such Award, or such other date as is determined by the Administrator. Notice of
the grant determination shall be given to each Employee, Director or Consultant
to whom an Award is so granted within a reasonable time after the date of such
grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload Options.
(a) Exercise or Purchase Price. The exercise or purchase price, if any,
for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.
6
<PAGE> 7
(B) granted to any Employee other than an Employee described in the
preceding paragraph, the per Share exercise price shall be not less than one
hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than eighty-five percent (85%) of the Fair
Market Value per Share on the date of grant unless otherwise determined by the
Administrator.
(iii) In the case of other Awards, such price as is determined by the
Administrator.
(b) Consideration. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise or purchase of an Award including
the method of payment, shall be determined by the Administrator (and, in the
case of an Incentive Stock Option, shall be determined at the time of grant). In
addition to any other types of consideration the Administrator may determine,
the Administrator is authorized to accept as consideration for Shares issued
under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines as
appropriate;
(iv) if the exercise occurs on or after the Registration Date,
surrender of Shares or delivery of a properly executed form of attestation of
ownership of Shares as the Administrator may require (including withholding of
Shares otherwise deliverable upon exercise of the Award) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
exercise price of the Shares as to which said Award shall be exercised (but only
to the extent that such exercise of the Award would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price
unless otherwise determined by the Administrator);
(v) if the exercise occurs on or after the Registration Date, delivery
of a properly executed exercise notice together with such other documentation as
the Administrator and the broker, if applicable, shall require to effect an
exercise of the Award and delivery to the Company of the sale or loan proceeds
required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee or
other person until such Grantee or other person has made arrangements acceptable
to the Administrator for the satisfaction of any foreign, federal, state, or
local income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares or the
7
<PAGE> 8
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax withholding of
an Option is satisfied by the Company or the Grantee's employer withholding
Shares otherwise deliverable to the Grantee, the Administrator may issue the
Grantee an additional Option, with terms identical to the Award Agreement under
which the Option was exercised, but at an exercise price as determined by the
Administrator in accordance with the Plan.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be exercisable at such times and
under such conditions as determined by the Administrator under the terms of the
Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Award by the person entitled to exercise the Award and full payment for the
Shares with respect to which the Award is exercised has been received by the
Company. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive dividends
or any other rights as a stockholder shall exist with respect to Shares subject
to an Award, notwithstanding the exercise of an Option or other Award. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in the
Award Agreement or Section 11(a), below.
(b) Exercise of Award Following Termination of Employment, Director or
Consulting Relationship.
(i) An Award may not be exercised after the termination date of such
Award set forth in the Award Agreement and may be exercised following the
termination of a Grantee's Continuous Status as an Employee, Director or
Consultant only to the extent provided in the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an Award
following the termination of the Grantee's Continuous Status as an Employee,
Director or Consultant for a specified period, the Award shall terminate to the
extent not exercised on the last day of the specified period or the last day of
the original term of the Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the extent
not exercised within the time permitted by law for the exercise of Incentive
Stock Options following the termination of a Grantee's Continuous Status as an
Employee, Director or
8
<PAGE> 9
Consultant shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.
(c) Buyout Provisions. The Administrator may at any time offer to buy out
for a payment in cash or Shares, an Award previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Award unless
the exercise of such Award and the issuance and delivery of such Shares pursuant
thereto shall comply with all Applicable Laws, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Repurchase Rights. If the provisions of an Award Agreement grant to the
Company the right to repurchase Shares upon termination of the Grantee's
Continuous Status as an Employee, Director or Consultant, the Award Agreement
shall provide that the repurchase price will be either:
(a) Not less than the Fair Market Value of the Shares to be repurchased on
the date of termination of the Grantee's Continuous Status as an Employee,
Director or Consultant, and the right to repurchase must be exercised for cash
or cancellation of purchase money indebtedness for the Shares within ninety (90)
days of the termination of the Grantee's Continuous Status as an Employee,
Director or Consultant (or in the case of Shares issued upon exercise of Awards
after the date of termination of the Grantee's Continuous Status as an Employee,
Director or Consultant, within ninety (90) days after the date of the Award
exercise), and the right terminates when the Company's securities become
publicly traded; or
(b) The original purchase price, provided that the right to repurchase at
the original purchase price lapses at the rate of at least twenty percent (20%)
of the Shares subject to the Award per year over five (5) years from the date
the Award is granted (without respect to the date the Award was exercised or
became exercisable), and the right to repurchase must be exercised for cash or
cancellation of purchase money indebtedness for the Shares within ninety (90)
days of termination of the Grantee's Continuous Status as an Employee, Director
or Consultant (or in the case of Shares issued upon exercise of Awards after the
date of termination of the Grantee's Continuous Status as an Employee, Director
or Consultant, within ninety (90) days after the date of the Award exercise).
9
<PAGE> 10
(c) In addition to the restrictions set forth in (a) and (b) above, the
Shares held by an Officer, Director or Consultant may be subject to additional
or greater restrictions.
11. Adjustments Upon Changes in Capitalization or Corporate Transaction.
(a) Adjustments upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, as well as the price per share of Common Stock
covered by each such outstanding Award, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.
(b) Corporate Transaction. Except as provided otherwise in an individual
Award Agreement, in the event of any Corporate Transaction, the Award will
terminate immediately prior to the specified effective date of the Corporate
Transaction, unless the Award is (i) accelerated pursuant to paragraphs (c) or
(d) below or (ii) assumed or an equivalent Award is substituted by the successor
corporation or a Parent or Subsidiary of such successor corporation. For the
purposes of this subsection, the Award shall be considered assumed or
substituted for an equivalent Award if, following the Corporate Transaction, the
Award confers, for each Share subject to the Award immediately prior to the
Corporate Transaction, (i) the consideration (whether stock, cash, or other
securities or property) received in the Corporate Transaction by holders of
Common Stock for each Share subject to the Award held on the effective date of
the Corporate Transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares), or (ii) the right to purchase such consideration in the
case of an Option or similar Award; provided, however, that if such
consideration received in the Corporate Transaction was not solely common stock
of the successor corporation or its Parent, the Administrator may, with the
consent of the successor corporation, provide for the consideration to be
received upon the exercise or exchange of the Award for each Share subject to
the Award to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders of
Common Stock in the Corporate Transaction.
(c) The Administrator shall have the authority, exercisable either in
advance of any actual or anticipated Corporate Transaction or at the time of an
actual Corporate Transaction and exercisable at the time of the grant of an
Award under the Plan or any time while an Award remains outstanding, to provide
for the full automatic vesting and exercisability of one or more outstanding
unvested Awards under the Plan and the release from restrictions on transfer and
repurchase or forfeiture rights of such Awards in connection with a Corporate
Transaction on such terms and conditions as the Administrator may specify. The
Administrator also shall have the authority to condition any such Award vesting
and exercisability or release from such
10
<PAGE> 11
limitations upon the subsequent termination of the Continuous Status as an
Employee or Consultant of the Grantee within a specified period following the
effective date of the Change in Control or Subsidiary Disposition. The
Administrator may provide that any Awards so vested or released from such
limitations in connection with a Change in Control or Subsidiary Disposition,
shall remain fully exercisable until the expiration or sooner termination of the
Award. Effective upon the consummation of a Corporate Transaction, all
outstanding Awards under the Plan shall terminate unless assumed by the
successor company or its Parent.
(d) The portion of any Incentive Stock Option accelerated under paragraph
(b) of this Section 11 in connection with a Corporate Transaction shall remain
exercisable as an Incentive Stock Option under the Code only to the extent the
$100,000 dollar limitation of Section 422(d) of the Code is not exceeded. To the
extent such dollar limitation is exceeded, the accelerated excess portion of
such Option shall be exercisable as a Non-Qualified Stock Option.
12. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the Company.
It shall continue in effect for a term of ten (10) years unless sooner
terminated.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan. To the
extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 12, above) shall not affect Awards already
granted, and such Awards shall remain in full force and effect as if the Plan
had not been amended, suspended or terminated, unless mutually agreed otherwise
between the Grantee and the Administrator, which agreement must be in writing
and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
(b) The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan shall
not confer upon any Grantee any right with respect to continuation of employment
or consulting relationship with the Company, nor shall it interfere in any way
with his or her right or the
11
<PAGE> 12
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
16. Stockholder Approval. The grant of Incentive Stock Options under the Plan
shall be subject to approval by the stockholders of the Company within twelve
(12) months before or after the date the Plan is adopted. Such stockholder
approval shall be obtained in the degree and manner required under Applicable
Laws. The Administrator may grant Incentive Stock Options under the Plan prior
to approval by the stockholders, but until such approval is obtained, no such
Incentive Stock Option shall be exercisable. In the event that stockholder
approval is not obtained within the twelve (12) month period provided above, all
Incentive Stock Options previously granted under the Plan shall terminate.
17. Information to Grantees. The Company shall provide to each Grantee,
during the period for which such Grantee has one or more Awards outstanding,
copies of financial statements at least annually.
12
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into as of _____________, 1998, between SkillSoft
Corporation, a Delaware corporation (the "Company"), and Charles E. Moran
("Employee").
R E C I T A L S
Company desires to obtain the services of Employee, on its own behalf and on
behalf of all existing and future Affiliated Companies (defined to mean any
corporation or other business entity or entities that directly or indirectly
controls, is controlled by, or is under common control with the Company), and
Employee desires to secure employment from the Company upon the following terms
and conditions.
A G R E E M E N T
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. Position, Period of Employment.
(a) Period of Employment. The Company hereby employs Employee to render
services to the Company in the position and with the duties and responsibilities
described in Section 1(b) for the period (the "Period of Employment") commencing
on the date of this Agreement and ending upon the date this Agreement is
terminated in accordance with Section 3 below. Except as provided in Section 3
below, the Company shall pay Employee the compensation to which he is entitled
under Section 2(a) through the end of the Period of Employment, and thereafter
Company's obligations hereunder to pay or otherwise provide compensation and
benefits to Employee shall end.
(b) Position. Employee hereby accepts employment with the Company as
President and Chief Executive Officer. Employee shall devote his best efforts
and his full time and attention to the performance of the services customarily
incident to such office and to such other services as may be reasonably
requested by the Board of Directors of the Company (the "Board"). During the
Period of Employment, Employee will not accept any other employment of any
nature, excluding personal business carried on outside regular business hours
that does not materially interfere with the services required by this Agreement.
The Company shall retain full direction and control of the means and methods by
which Employee performs the above services and, subject to the terms of this
Section 1(b), of the place(s) at which such services are to be rendered. During
the term of this agreement, employee shall be located in New Hampshire.
(c) Service on Board and Management Committee. During the Period of
Employment and subject to this Section 1(c), Employee shall further serve as
Chairman of the Board, provided that (i) the Company shall have the right to
<PAGE> 2
require Employee to resign or otherwise be removed from the Board if a majority
of the Board shall reasonably determine that it is in the best interest of the
Company that Employee cease to serve on the Board; (ii) Employee shall in his
sole discretion have the right at any time during the Period of Employment to
resign from the Board; and (iii) any right of Employee to continue to serve on
the Board shall be subject to the rights of the shareholders of the Company to
vote their shares of the Company to remove or not re-elect him to the Board.
(d) Non-Compete. Employee, during the Period of Employment (as defined
below), will not engage, directly or indirectly as an employee, director,
consultant, shareholder, partner or independent contractor or in any other
capacity, in any other business activity (whether or not pursued for pecuniary
advantage) that is competitive with, or that might place him in a competing
position to that of the Company or any other corporation or entity that directly
or indirectly is controlled by the Company (an "Affiliated Company"); provided,
however, that Employee may make passive personal investments (not exceeding
ownership of more than one (1) percent of the equity interest in any company) in
publicly-held companies that may compete with the Company or any Affiliated
Company.
2. Compensation, Benefits, Expenses.
(a) Compensation. In consideration of the services to be rendered
hereunder, including, without limitation, services to any Affiliated Company,
Employee shall be paid an annual salary of two hundred fifty thousand
($250,000), payable at the times and pursuant to the procedures regularly
established, and as they may be amended, by the Company during the course of
this Agreement. This rate shall be reviewed annually, in accordance with the
Company's salary review practices, and increased to reflect increases in the
cost of living and such other increases as are awarded in accordance with the
Company's regular salary review practices for giving salary increases to
similarly situated employees.
(b) Bonus. Subsequent the earlier of (i) the end of the second consecutive
quarter that the Company achieves quarterly revenues exceeding $1,000,000, as
determined in accordance with generally accepted accounting principals, (ii) the
date four years after the date of this agreement or (iii) the closing of any
reorganization or merger of the Company with or into any other company or the
sale by the Company of all or substantially all of its assets (or any series of
related transactions resulting in the sale or other transfer of all or
substantially all of its assets) if the Company's stockholders of record
immediately prior to such reorganization or merger own less than 50% of the
equity securities of the surviving corporation or its parent immediately after
such reorganization or merger (for the purpose of this calculation equity
securities owned by any stockholder of the Company immediately prior to such
merger or reorganization as a stockholder of another party to the transaction
shall be disregarded), it shall promptly pay
-2-
<PAGE> 3
Employee a lump sum cash bonus of $600,000. In addition, Employee shall be
eligible to participate in such bonus plans as the Company may from time to time
adopt for the benefit of similarly situated employees of the Company. Employee's
right to receive any such bonus shall be subject to the terms of any Company
bonus plan for which he may become a participant and the terms determined by the
Board or a Committee thereof designating him as a participant or granting him an
award thereunder.
(c) Vacation. Employee shall be entitled to vacation in accordance with
the Company's vacation policies for similarly situated employees, as such
policies may be amended from time to time.
(d) Benefits. As he becomes eligible therefor, the Company shall provide
Employee with the right to participate in and to receive benefits from all
present and future life, accident, disability, medical, pension, and savings
plans and all similar benefits made available generally to executives similarly
situated employees of the Company. The amount and extent of benefits to which
Employee is entitled shall be governed by the specific benefit plan, as it may
be amended from time to time.
(e) Expenses. The Company shall reimburse Employee for reasonable travel
and other business expenses incurred by Employee in the performance of his
duties hereunder in accordance with the Company's general policies, as they may
be amended from time to time during the course of this Agreement.
3. Termination of Employment.
(a) By Death. The Period of Employment shall terminate automatically upon
the death of the Employee. The Company shall pay to the Employee's beneficiaries
or estate, as appropriate, the compensation to which he is entitled pursuant to
Section 2(a) through the end of the month in which death occurs. Thereafter, the
Company's obligations hereunder shall terminate. Nothing in this Section shall
affect any entitlement of the Employee's heirs to the benefits of any life
insurance plan.
(b) By Disability. If, in the sole opinion of the Board, the Employee
shall be prevented from properly performing his duties hereunder by reason of
any physical or mental incapacity for a period of more than one hundred and
twenty (120) consecutive days in any twelve-month period, then, to the extent
permitted by law, the Period of Employment shall terminate on and the
compensation to which Employee is entitled pursuant to Section 2(a) shall be
paid up through the last day of the month in which the one hundred and twentieth
day of incapacity occurs, and thereafter the Company's obligations hereunder
shall terminate. Nothing in this
-3-
<PAGE> 4
Section shall affect Employee's rights under any disability plan in which he is
a participant.
(c) By Company For Cause. The Company may terminate, without liability,
the Period of Employment for Cause (as defined below) at any time with no
advance notice to Employee. The Company shall pay Employee the compensation to
which he is entitled pursuant to Section 2(a) prorated through the date of
termination. Termination shall be for Cause if: (i) because of any intentional
act or failure to act by Employee which, in the reasonable opinion of the Board,
is in bad faith and to the detriment of the Company or any Affiliated Company;
(ii) in the reasonable opinion of the Board, Employee refuses or fails to act in
accordance with any direction or order of the Board; (iii) in the reasonable
opinion of the Board, Employee shall fail in any material respect and on a
continuing basis to perform his duties pursuant to Section 1 hereof (other than
as a result of disability as provided for in Section 3(b)) and shall not have
cured such failure following thirty (30) days notice from a majority of the
members of the Board; (iv) Employee is convicted of a crime relating to his
employment by the Company or that has a material adverse effect on the Company
or, in the reasonable opinion of the Board, Employee's ability to perform
services hereunder; or (v) because Employee, in the reasonable opinion of the
Board, breaches any material term of this Agreement, provided the breach
continues for a period of five (5) days after Employee receives written notice
of that breach from the Board. Employee hereby agrees that the Company may
dismiss him under this Section 3(c) without regard (1) to any general or
specific policies (whether written or oral) of the Company relating to the
employment or termination of its employees, or (2) to any statements made to
Employee, whether made orally or contained in any document (other than this,
Agreement), pertaining to Employee's relationship with the Company.
(d) By Employee For Good Reason. Employee may terminate, without
liability, the Period of Employment for Good Reason (as defined below) upon
twenty (20) days' advance written notice to the Company. The Company shall pay
Employee the compensation to which he is entitled pursuant to Section 2(a)
through the end of the notice period plus the Severance Benefits (as defined in
Section 3(f) below) and thereafter all obligations of the Company hereunder
shall terminate. Good Reason shall exist if: (i) there is an assignment to the
Employee of any duties materially inconsistent with or which constitute a
material change in the Employee's position, duties, responsibilities, or status
with the Company, or a material change in the Employee's reporting
responsibilities, title, or offices; or removal of the Employee from any of such
positions, except in connection with the termination of the Period of Employment
for Cause, or due to disability, early or normal retirement as defined by the
Company's pension plan, death, or termination of the Period of Employment by the
Employee other than for Good Reason (provided that removal and/or failure to
re-elect Employee to the Board in accordance with Section 1(c) shall not be
deemed Good Reason for purposes of this Section 3(d)); (ii)
-4-
<PAGE> 5
there is a reduction by the Company in the Employee's annual salary then in
effect other than a reduction similar in percentage to a reduction generally
applicable to similarly situated employees of the Company; or (iii) the Company
acts in any way that would adversely affect the Employee's participation in or
materially reduce the Employee's benefit under any benefit plan of the Company
in which the Employee is participating or deprive the Employee of any material
fringe benefit enjoyed by the Employee except those changes generally affecting
similarly situated employees of the Company.
(e) At Will. At any time, either the Company or the Employee may
terminate, without liability, the Period of Employment for any reason, with or
without cause, on written notice to the other party. In the event Employee
elects to terminate the Period of Employment pursuant to this Section 3(e),
Employee shall give the Company not less than two (2) months' notice of such
termination. If the Employee terminates his employment pursuant to this Section
3(e), the Company shall have the option, in its sole discretion, to terminate
Employee immediately without the running of the notice period. If the Employee
terminates his employment pursuant to this Section 3(e), the Company shall pay
Employee the compensation to which he is entitled pursuant to Section 2(a)
through the end of the notice period or through the day upon which any early
termination is elected by the Company pursuant to the foregoing sentence, and
thereafter all obligations of the Company shall terminate. In the event the
Company elects to terminate the Period of Employment pursuant to this Section
3(e), the Company shall give Employee not less than three months notice of such
termination. Employee hereby agrees that the Company may dismiss him under this
Section 3(e) without regard (i) to any general or specific policies (whether
written or oral) of the Company relating to the
(f) employment or termination of its employees, or (ii) to any statements
made to Employee, whether made orally or contained in any document, pertaining
to Employee's relationship with the Company.
(g) Severance Benefits.
(1) Employee shall only be entitled to Severance Benefits hereunder in
the event that the Period of Employment shall be terminated (i) by Employee in
accordance with Section 3(d) and subject to the terms of said Section 3(d) or
(ii) by the Company in accordance with Section 3(e) and subject to the terms of
said Section 3(e). Upon full payment of and upon providing of such Severance
Benefits, Employee shall be deemed to have released the Company and each of its
officers, directors and agents from any and all claims, liabilities or causes of
action in favor of the Employee arising in connection with his prior employment
by the Company.
-5-
<PAGE> 6
(2) For purposes of this Agreement, "Severance Benefits" shall
mean a continuation by the Company for a period of twelve (12) months of: (i)
Employee's salary payable in accordance with the Company's payroll procedures
pursuant to Section 2(a) following termination; (ii) those benefits to which
Employee is entitled pursuant to Section 2(f) hereof, including but not limited
to medical benefits substantially similar to those provided Employee prior to
termination of employment; and (iii) the vesting and right to exercise any stock
options held by Employee at the time of termination. As a condition precedent to
the continued vesting and exercisability of Employee's stock options during said
twelve (12) month period, Employee agrees to perform, on request from the
Company, up to ten (10) hours of consulting service per month during said twelve
(12) month period. Subject to Employee fulfilling his consulting obligations to
the Company as provided in this Section 3(f)(2) during the Severance Period (as
defined below), Employee shall be deemed to continue as employee of the Company
during the Severance Period for the purpose of such stock options, and such
stock options shall thereafter terminate in accordance with their terms
following expiration of the Severance Period. No additional compensation shall
be payable by the Company for such consulting services beyond the Severance
Benefits. The period in which Employee shall be entitled to Severance Benefits
shall hereinafter be referred to as the "Severance Period."
(h) Termination Obligations.
(1) Employee hereby acknowledges and agrees that all personal property,
including, without limitation, all books, manuals, records, reports, notes,
contracts, lists, blueprints, and other documents, or materials, or copies
thereof, and equipment furnished to or prepared by Employee in the course of or
incident to his employment, belong to the Company and shall be promptly returned
to the Company upon termination of the Period of Employment. Following
termination, the Employee will not retain any written or other tangible material
containing any proprietary information of the Company.
(2) Upon termination of the Period of Employment, the Employee shall be
deemed to have resigned from all offices and directorships then held with the
Company or any Affiliated Company.
4. Proprietary Information Agreement. As a condition to his employment with
the Company, Employee shall execute and deliver a copy of the Company's standard
form Employee Proprietary Information and Inventions Agreement. Any breach by
Employee of such agreement shall be deemed a breach of this Agreement for
purposes of Section 3(c) hereof. Employee's obligations under such Employee
Proprietary Information and Inventions Agreement shall survive any termination
of the Period of Employment.
-6-
<PAGE> 7
5. Assignment; Successors and Assigns. Employee agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement, nor shall Employee's rights be subject to encumbrance or the claims
of creditors. Any purported assignment, transfer, or delegation shall be null
and void. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement and the performance of its
obligations hereunder to any successor in interest or any Affiliated Company.
Subject to the foregoing, this Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective heirs, legal representatives,
successors, and permitted assigns, and shall not benefit any person or entity
other than those enumerated above.
6. Notices. All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand or mailed, postage prepaid, by certified or registered
mail, return receipt requested, and addressed to the Company at: 9 Chicadee
Court, Bedford, New Hampshire 03110
or to the Employee at: 9 Chicadee Court, Bedford, New Hampshire 03110
Notice of change of address shall be effective only when done in accordance with
this Section.
7. Entire Agreement. The terms of this Agreement are intended by the parties
to be the final expression of their agreement with respect to the employment of
Employee by the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding involving this Agreement.
8. Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by the Employee and by a
duly authorized representative of the Company other than Employee. By an
instrument in writing similarly executed, either party may waive compliance by
the other party with any provision of this Agreement that such other party was
or is obligated to comply with or perform, provided, however, that such waiver
shall not operate as a waiver of, or estoppel with respect to, any other or
subsequent failure. No failure to exercise and no delay in exercising any right,
remedy, or power hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, or power hereunder preclude any
other or further exercise thereof
-7-
<PAGE> 8
or the exercise of any other right, remedy, or power provided herein or by law
or in equity.
9. Severability; Enforcement. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect. It is the
intention of the parties that the covenants contained in Section 1(d) shall be
enforced to the greatest extent (but to no greater extent) in times area, and
degree of participation as is permitted by the law of that jurisdiction whose
law is found to be applicable to any acts allegedly in breach of these
covenants. It being the purpose of this Agreement to govern competition by
Employee anywhere throughout the world, these covenants shall be governed by and
construed according to that law (from among those jurisdictions arguably
applicable to this Agreement and those in which a breach of this Agreement is
alleged to have occurred or to be threatened) which best gives them effect.
10. Governing Law. Subject to Section 9 hereof, the validity, interpretation,
enforceability, and performance of this Agreement shall be governed by and
construed in accordance with the law of the State of California.
11. Employee Acknowledgment. Employee acknowledges (i) that he has consulted
with or has had the opportunity to consult with independent counsel of his own
choice concerning this Agreement and has been advised to do so by the Company,
and (ii) that he has read and understands the Agreement, is fully aware of its
legal effect, and has entered into it freely based on his own judgment.
12. Exclusive. Both parties agree that this Agreement shall provide the
exclusive remedies for any breach by the Company of its terms.
The parties have duly executed this Agreement as of the date first written
above.
COMPANY: EMPLOYEE:
SkillSoft Corporation
By: /s/ Charles E. Moran /s/ Charles E. Moran
----------------------------------- -------------------------------
Title: President & Chief Executive Officer
-----------------------------------
-8-
<PAGE> 1
EXHIBIT 10.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of this 10th day of
December, 1997, by and between SKILLSOFT CORPORATION, a Delaware corporation
("Secured Party"), and Charles E. Moran, an individual residing at 9 Chickadee
Court, Bedford, NH 03110 ("Debtor").
In consideration of the mutual covenants contained herein and for other good
and valuable consideration, the adequacy and receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Definitions. The following terms have the following meanings:
(a) The term "Collateral" shall mean (i) the tangible assets owned by
Debtor as of the date hereof and described in Exhibit A attached hereto and (ii)
all Proceeds of the foregoing Collateral. For purposes of this Security
Agreement, the term "Proceeds" includes whatever is receivable or received when
Collateral or proceeds thereof is sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes,
without limitation, all rights to payment, including return premiums, with
respect to any insurance relating thereto.
(b) The term "Obligations" shall mean all of the unpaid principal sum
of that certain Secured Promissory Note in the original principal amount of
$166,250 of even date herewith (the "Note") evidencing the indebtedness of
Debtor to Secured Party.
(c) The term "UCC" shall mean the Uniform Commercial Code as the same
may, from time to time, be in effect in the State of New Hampshire.
(d) Capitalized terms used herein shall have the meaning set
forth in the UCC unless otherwise set forth herein.
(e) The term "Event of Default" shall have the meaning set
forth in the Note.
2. Grant of Security Interest. As collateral security for prompt and
complete payment and performance under the Obligations, Debtor hereby assigns,
conveys, grants, pledges and transfers to and creates in favor of Secured Party
a security interest in the Collateral, including all Proceeds of the foregoing
and all accessions to, substitutions and replacements for the foregoing. Debtor
shall, upon execution of this Security Agreement, and of the Note as Payee (as
such term is defined in the Note), deliver all certificates representing the
Collateral together with a stock power executed in blank by Debtor and Debtor's
spouse with respect to such stock certificates to the Secretary of Secured Party
to be held in escrow until full satisfaction of Debtor's obligations hereunder
and under the Note with the authority to take all such actions and to effectuate
all such transfers and/or releases as may be necessary or appropriate to
accomplish the objectives of this Security Agreement and the Note. In the event
that the Proceeds from the disposition of the Collateral are insufficient to
fully satisfy the amounts due and owing under the Note, Debtor shall, subject to
the limitations set forth in the UCC, be liable for any deficiency.
<PAGE> 2
3. Representations, Warranties and Covenants. Debtor represents, warrants
and covenants that:
(a) Title. Apart from the security interest in the Collateral
granted to Secured Party hereunder, Debtor has good and valid title to the
Collateral, free and clear of any and all liens, charges, claims, security
interests or encumbrances of any kind whatsoever.
(b) Transfer of Collateral. Debtor shall not sell, assign, transfer,
encumber or otherwise dispose of any of the Collateral or any interest therein
without the prior written consent of Secured Party. If any such encumbrance is
imposed, Debtor shall give Secured Party immediate written notice.
(c) Perfection. Debtor shall, upon demand, do all such acts as
Secured Party may reasonably request to establish and maintain a perfected
security interest in the Collateral, including, without limitation, executing a
financing statement in the form prescribed by the New Hampshire Secretary of
State.
4. Remedies. Upon the occurrence of any Event of Default hereunder, the
entire unpaid principal balance of the Note shall, at the option of the Payee
and without notice or demand of any kind to Debtor or any other person,
immediately become due and payable, and Secured Party may proceed to exercise
any and all of the rights and remedies of a secured party under the UCC and any
other remedies available at law or in equity, with respect to the Collateral.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed as of the date first above written.
SECURED PARTY
SKILLSOFT CORPORATION a Delaware
corporation
By: /s/ Charles E. Moran
---------------------------------------------
Its: President & Chief Executive Officer
---------------------------------------------
DEBTOR
/s/ Charles E. Moran
--------------------------------------------------
Charles E. Moran
-3-
<PAGE> 4
EXHIBIT A
---------
DESCRIPTION OF COLLATERAL
950,000 shares of Common Stock of SKILLSOFT CORPORATION
-4-
<PAGE> 5
SECURED PROMISSORY NOTE
$166,250.00 December 10, 1997
FOR VALUE RECEIVED, the undersigned Charles E. Moran, an individual residing
at 9 Chickadee Court, Bedford, NH 03110 ("Maker"), hereby promises to pay to
SKILLSOFT CORPORATION, a Delaware corporation ("Payee"), on the earlier of (i)
five years from the date of this Promissory Note or (ii) the date Maker ceases
to be an employee of Payee, for any reason, the principal sum of One Hundred
Sixty-Six Thousand Two Hundred Fifty Dollars ($166,250.00), in lawful money of
the United States of America and in immediately available funds, plus simple
interest from the date hereof at the rate of six and 02/100 percent (6.2%) per
annum.
Interest shall be computed on the basis of a year of 365 days for the actual
number of days elapsed. Should interest not be paid when due hereunder, it shall
be added to the principal and thereafter bear like interest as the principal,
but such unpaid interest so compounded shall not exceed an amount equal to
simple interest on the unpaid principal at the maximum rate permitted by law.
This is the Promissory Note referred to in the Security Agreement of even
date herewith between Maker and Payee, and Payee is entitled to all the benefits
provided therein.
(i) Prepayments. Maker reserves the right to prepay the outstanding
principal amount of this Note in full or in part at any time during the term of
this Note without notice and without premium or penalty.
(ii) Events of Default and Remedies. Any one of the following occurrences
shall constitute an "Event of Default" under this Note:
(a) Maker fails to make payment of full principal amount of
this Note as and when the same becomes due and payable in accordance with the
terms hereof.
(b) Maker becomes insolvent or bankrupt, commits any act of
bankruptcy, generally fails to pay its debts as they become due, becomes the
subject of any proceedings or action of any regulatory agency or any court
relating to insolvency, or makes an assignment for the benefit of its creditors,
or enters into any agreement for the composition, extension, or readjustment of
all or substantially all of his or her obligations.
(c) Maker ceases to be an employee of Payee for any reason.
<PAGE> 6
Upon the occurrence of any Event of Default hereunder, the entire unpaid
principal balance of this Note (including accrued interest) shall, at the option
of the Payee and without notice or demand of any kind to Maker or any other
person, immediately become due and payable, and Payee shall have and may
exercise any and all rights and remedies available to it at law or in equity.
(iii) Attorneys' Fees and Costs. Maker promises to pay on demand all
reasonable out-of-pocket costs of and expenses of Payee in connection with the
collection of amounts due hereunder, including, without limitation, attorneys'
fees incurred in connection therewith, whether or not any lawsuit is ever filed
with respect thereto.
(iv) Employment Payments. Make shall have the right to offset any amounts
owing pursuant to that certain Employment Agreement dated December __, 1997
("Maker's Employment Agreement") against amounts owing pursuant to this Note,
including, without limitation, Maker shall have the right to so offset that
certain bonus payable to Maker pursuant to Section 2(c) of Maker's Employment
Agreement against principal and interest payable hereunder. Such bonus shall be
offset against amounts owing under this Note if this Note shall become payable
prior to payment of such bonus, notwithstanding that such bonus shall not then
be payable as provided pursuant to said Section 2(c) of Maker's Employment
Agreement.
(v) Miscellaneous.
(a) Waiver. Maker waives diligence, presentment, protest and demand and
also notice of protest, demand, dishonor and nonpayment of this Note. No
extension of time for the payment of this Note shall affect the original
liability under this Note of Maker. The pleading of any statute of limitations
as a defense to any demand against Maker is expressly waived by Maker to the
full extent permitted by law.
(b) Setoff. Except as provided in paragraph (iv) above, the
obligation to pay Payee shall be absolute and unconditional and the rights of
Payee shall not be subject to any defense, setoff, counterclaim or recoupment or
by reason of any indebtedness or liability at any time owing by Payee to Maker.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Note as of the date first above written.
MAKER
/s/ Charles E. Moran
-----------------------------------
Charles E. Moran
-2-
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into as of January 12, 1998, between SkillSoft
Corporation, a Delaware corporation (the "Company"), and Mark Townsend
("Employee").
R E C I T A L S
Company desires to obtain the services of Employee, on its own behalf and on
behalf of all existing and future Affiliated Companies (defined to mean any
corporation or other business entity or entities that directly or indirectly
controls, is controlled by, or is under common control with the Company), and
Employee desires to secure employment from the Company upon the following terms
and conditions.
AGREEMENT
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. Position, Period of Employment.
(a) Period of Employment. The Company hereby employs Employee to render
services to the Company in the position and with the duties and responsibilities
described in Section 1(b) for the period (the "Period of Employment") commencing
on the date of this Agreement and ending upon the date this Agreement is
terminated in accordance with Section 3 below. Except as provided in Section 3
below, the Company shall pay Employee the compensation to which he is entitled
under Section 2(a) through the end of the Period of Employment, and thereafter
Company's obligations hereunder to pay or otherwise provide compensation and
benefits to Employee shall end.
(b) Position. Employee hereby accepts employment with the Company as
Vice President-Product Development. Employee shall devote his best efforts and
his full time and attention to the performance of the services customarily
incident to such office and to such other services as may be reasonably
requested by the Board of Directors of the Company (the "Board"). During the
Period of Employment, Employee will not accept any other employment of any
nature, excluding personal business carried on outside regular business hours
that does not materially interfere with the services required by this Agreement.
The Company shall retain full direction and control of the means and methods by
which Employee performs the above services and, subject to the terms of this
Section 1(b), of the place(s) at which such services are to be rendered. During
the term of this agreement, employee's principal location shall be in New
Hampshire.
(c) Non-Compete/Conflict of Interest. Employee, during the Period of
Employment (as defined below), will not engage, directly or indirectly as an
employee, director, consultant, shareholder, partner or independent contractor
or in
<PAGE> 2
any other capacity, in any other business activity (whether or not pursued for
pecuniary advantage) that is competitive with, or that might place him in a
competing position to that of the Company or any other corporation or entity
that directly or indirectly is controlled by the Company (an "Affiliated
Company"); provided, however, that Employee may make passive personal
investments (not exceeding ownership of more than one (1) percent of the equity
interest in any company) in publicly-held companies that may compete with the
Company or any Affiliated Company.
2. Compensation, Benefits, Expenses.
(a) Compensation. In consideration of the services to be rendered
hereunder, including, without limitation, services to any Affiliated Company,
Employee shall be paid an amount equal to $6,042 (six thousand forty-two
dollars) twice per month, payable at the times and pursuant to the procedures
regularly established, and as they may be amended, by the Company during the
course of this Agreement. This rate shall be reviewed annually, in accordance
with the Company's salary review practices, and increased, in the Company's sole
discretion, to reflect increases in the cost of living and such other increases
as are awarded in accordance with the Company's regular salary review practices.
(b) Restricted Stock. The Company shall sell Employee and Employee shall
purchase from the Company 600,000 shares of the Company's Common Stock upon the
terms and conditions set forth in that certain Restricted Stock Purchase
Agreement in the form attached hereto as Exhibit A, which the Company shall
execute and deliver to Employee concurrently with the signing by both parties of
this Agreement.
(c) Bonus. Employee shall be eligible to participate in such bonus plans
as the Company may from time to time adopt for the benefit of similarly situated
employees of the Company. Employee's right to receive any such bonus shall be
subject to the terms of any Company bonus plan for which he may become a
participant and the terms determined by the Board or a Committee thereof
designating him as a participant or granting him an award thereunder.
(d) Vacation. Employee shall be entitled to vacation in accordance with
the Company's vacation policies for similarly situated employees, as such
policies may be amended from time to time.
(e) Benefits. As he becomes eligible therefor, the Company shall provide
Employee with the right to participate in and to receive benefits from all
present and future life, accident, disability, medical, pension, and savings
plans and all similar benefits made available generally to executives similarly
situated employees of the Company. The amount and extent of benefits to which
Employee is
-2-
<PAGE> 3
entitled shall be governed by the specific benefit plan, as it may be amended
from time to time.
(f) Expenses. The Company shall reimburse Employee for reasonable travel
and other business expenses incurred by Employee in the performance of his
duties hereunder in accordance with the Company's general policies, as they may
be amended from time to time during the course of this Agreement.
3. Termination of Employment.
(a) By Death. The Period of Employment shall terminate automatically upon
the death of the Employee. The Company shall pay to the Employee's beneficiaries
or estate, as appropriate, the compensation to which he is entitled pursuant to
Section 2(a) through the end of the month in which death occurs. Thereafter, the
Company's obligations hereunder shall terminate. Nothing in this Section shall
affect any entitlement of the Employee's heirs to the benefits of any life
insurance plan.
(b) By Disability. If, in the sole opinion of the Company's Board of
Directors (the "Board"), the Employee shall be prevented from properly
performing his duties hereunder by reason of any physical or mental incapacity
for a period of more than one hundred and twenty (120) consecutive days in any
twelve-month period, then, to the extent permitted by law, the Period of
Employment shall terminate on and the compensation to which Employee is entitled
pursuant to Section 2(a) shall be paid up through the last day of the month in
which the one hundred and twentieth day of incapacity occurs, and thereafter the
Company's obligations hereunder shall terminate. Nothing in this Section shall
affect Employee's rights under any disability plan in which he is a participant.
(c) By Company For Cause. The Company may terminate, without liability,
the Period of Employment for Cause (as defined below) at any time with no
advance notice to Employee. The Company shall pay Employee the compensation to
which he is entitled pursuant to Section 2(a) prorated through the date of
termination. Termination shall be for Cause if: (i) because of any intentional
act or failure to act by Employee which, in the reasonable opinion of the Board,
is in bad faith and to the detriment of the Company or any Affiliated Company;
(ii) in the reasonable opinion of the Board, Employee refuses or fails to act in
accordance with any direction or order of the Board; (iii) in the reasonable
opinion of the Board, Employee shall fail in any material respect and on a
continuing basis to perform his duties pursuant to Section 1 hereof (other than
as a result of disability as provided for in Section 3(b)) and shall not have
cured such failure following thirty (30) days notice from a majority of the
members of the Board; (iv) Employee is convicted of a crime relating to his
employment by the Company or that has a material adverse
-3-
<PAGE> 4
effect on the Company or, in the reasonable opinion of the Board, Employee's
ability to perform services hereunder; or (v) because Employee, in the
reasonable opinion of the Board, breaches any material term of this Agreement,
provided the breach continues for a period of five (5) days after Employee
receives written notice of that breach from the Board. Employee hereby agrees
that the Company may terminate his employment with the Company under this
Section 3(c) without regard (1) to any general or specific policies (whether
written or oral) of the Company relating to the employment or termination of its
employees, or (2) to any statements made to Employee, whether made orally or
contained in any document (other than this Agreement), pertaining to Employee's
relationship with the Company.
(d) By Employee For Good Reason. Employee may terminate, without
liability, the Period of Employment for Good Reason (as defined below) upon
twenty (20) days' advance written notice to the Company. The Company shall pay
Employee the compensation to which he is entitled pursuant to Section 2(a)
through the end of the notice period plus the Severance Benefits (as defined in
Section 3(f) below) and thereafter all obligations of the Company hereunder
shall terminate. Good Reason shall exist if (i) there is an assignment to the
Employee of any duties materially inconsistent with or which constitute a
material change in the Employee's position, duties, responsibilities, or status
with the Company, or a material change in the Employee's reporting
responsibilities, title, or offices; or removal of the Employee from any of such
positions, except in connection with the termination of the Period of Employment
for Cause, or due to disability, early or normal retirement as defined by the
Company's pension plan, death, or termination of the Period of Employment by the
Employee other than for Good Reason (provided that removal and/or failure to
re-elect Employee to the Board in accordance with Section 1(c) shall not be
deemed Good Reason for purposes of this Section 3(d)); (ii) there is a reduction
by the Company in the Employee's annual salary then in effect other than a
reduction similar in percentage to a reduction generally applicable to similarly
situated employees of the Company; or (iii) the Company acts in any way that
would adversely affect the Employee's participation in or materially reduce the
Employee's benefit under any benefit plan of the Company in which the Employee
is participating or deprive the Employee of any material fringe benefit enjoyed
by the Employee except those changes generally affecting similarly situated
employees of the Company.
(e) At Will. At any time, either the Company or the Employee may
terminate, without liability, the Period of Employment for any reason, with or
without cause, on written notice to the other party. In the event Employee
elects to terminate the Period of Employment pursuant to this Section 3(e),
Employee shall give the Company not less than two (2) months' notice of such
termination. If the Employee terminates his employment pursuant to this Section
3(e), the Company shall have the option, in its sole discretion, to terminate
Employee immediately without the running of the notice period. If the Employee
terminates his
-4-
<PAGE> 5
employment pursuant to this Section 3(e), the Company shall pay Employee the
compensation to which he is entitled pursuant to Section 2(a) through the end of
the notice period or through the day upon which any early termination is elected
by the Company pursuant to the foregoing sentence, and thereafter all
obligations of the Company shall terminate. In the event the Company elects to
terminate the Period of Employment pursuant to this Section 3(e), the Company
shall give Employee not less than three months notice of such termination.
Employee hereby agrees that the Company may dismiss him under this Section 3(e)
without regard (i) to any general or specific policies (whether written or oral)
of the Company relating to the employment or termination of its employees, or
(ii) to any statements made to Employee, whether made orally or contained in any
document, pertaining to Employee's relationship with the Company.
(f) Severance Benefits.
(1) Employee shall only be entitled to Severance Benefits hereunder in
the event that the Period of Employment shall be terminated (i) by Employee in
accordance with Section 3(d) and subject to the terms of said Section 3(d) or
(ii) by the Company in accordance with Section 3(e) and subject to the terms of
said Section 3(e). Upon full payment of and upon providing of such Severance
Benefits, Employee shall be deemed to have released the Company and each of its
officers, directors and agents from any and all claims, liabilities or causes of
action in favor of the Employee arising in connection with his prior employment
by the Company.
(2) For purposes of this Agreement, "Severance Benefits" shall mean a
continuation by the Company for a period of six (6) months of: (i) Employee's
salary payable in accordance with the Company's payroll procedures pursuant to
Section 2(a) following termination; (ii) those benefits to which Employee is
entitled pursuant to Section 2(f) hereof, including but not limited to medical
benefits substantially similar to those provided Employee prior to termination
of employment; and (iii) the vesting and right to exercise any stock options
held by Employee at the time of termination. As a condition precedent to the
continued vesting and exercisability of Employee's stock options during said six
(6) month period, Employee agrees to perform, on request from the Company, up to
ten (10) hours of consulting service per month during said six (6) month period.
Subject to Employee fulfilling his consulting obligations to the Company as
provided in this Section 3(f)(2) during the Severance Period (as defined below),
Employee shall be deemed to continue as employee of the Company during the
Severance Period for the purpose of such stock options, and such stock options
shall thereafter terminate in accordance with their terms following expiration
of the Severance Period. No additional compensation shall be payable by the
Company for such consulting services beyond the Severance Benefits. The period
in which Employee shall be entitled to Severance Benefits shall hereinafter be
referred to as the "Severance
-5-
<PAGE> 6
Period." Notwithstanding any other provision herein, if Employee accepts
employment at any entity or engages in any business activity that is or may be
competitive with the Company (or any affiliate thereof) prior to the end of such
six (6) month period, Employee shall then immediately inform the Company of such
employment and immediately cease to be eligible for any continuing Severance
Benefits, including any continued salary payments, medical, benefits and option
or share vesting.
(g) Termination Obligations.
(1) Employee hereby acknowledges and agrees that all personal property,
including, without limitation, all books, manuals, records, reports, notes,
contracts, lists, blueprints, and other documents, or materials, or copies
thereof, and equipment furnished to or prepared by Employee in the course of or
incident to his employment, belong to the Company and shall be promptly returned
to the Company upon termination of the Period of Employment. Following
termination, the Employee will not retain any written or other tangible material
containing any proprietary information of the Company.
(2) Upon termination of the Period of Employment, the Employee shall be
deemed to have resigned from all offices and directorships then held with the
Company or any Affiliated Company.
4. Proprietary Information Agreement. As a condition to his employment
with the Company, Employee shall execute and deliver a copy of the Company's
standard form Employee Proprietary Information and Inventions Agreement. Any
breach by Employee of such agreement shall be deemed a breach of this Agreement
for purposes of Section 3(c) hereof. Employee's obligations under such Employee
Proprietary Information and Inventions Agreement shall survive any termination
of the Period of Employment.
5. Assignment; Successors and Assigns. Employee agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement, nor shall Employee's rights be subject to encumbrance or the claims
of creditors. Any purported assignment, transfer, or delegation shall be null
and void. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement and the performance of its
obligations hereunder to any successor in interest or any Affiliated Company.
Subject to the foregoing, this Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective heirs, legal representatives,
successors, and permitted assigns, and shall not benefit any person or entity
other than those enumerated above.
-6-
<PAGE> 7
6. Notices. All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand or mailed, postage prepaid, by certified or registered
mail, return receipt requested, and addressed to the Company at: 9 Chickadee
Court, Bedford, New Hampshire 03110 or to the Employee at: 8 Major Hale Drive,
Framingham, MA 01701.
Notice of change of address shall be effective only when done in accordance with
this Section.
7. Entire Agreement. The terms of this Agreement are intended by the parties
to be the final expression of their agreement with respect to the employment of
Employee by the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding involving this Agreement.
8. Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by the Employee and by a
duly authorized representative of the Company other than Employee. By an
instrument in writing similarly executed, either party may waive compliance by
the other party with any provision of this Agreement that such other party was
or is obligated to comply with or perform, provided, however, that such waiver
shall not operate as a waiver of, or estoppel with respect to, any other or
subsequent failure. No failure to exercise and no delay in exercising any right,
remedy, or power hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, or power hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy, or
power provided herein or by law or in equity.
9. Severability; Enforcement. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect. It is the
intention of the parties that the covenants contained in Section 1(d) shall be
enforced to the greatest extent (but to no greater extent) in times area, and
degree of participation as is permitted by the law of that jurisdiction whose
law is found to be applicable to any acts allegedly in breach of these
covenants. It being the purpose of this Agreement to govern competition by
Employee anywhere throughout the world, these covenants shall be governed by and
construed according to that law (from among those jurisdictions
-7-
<PAGE> 8
arguably applicable to this Agreement and those in which a breach of this
Agreement is alleged to have occurred or to be threatened) which best gives them
effect.
10. Governing Law. Subject to Section 9 hereof, the validity, interpretation,
enforceability, and performance of this Agreement shall be governed by and
construed in accordance with the law of the State of New Hampshire.
11. Employee Acknowledgment. Employee acknowledges (i) that he has consulted
with or has had the opportunity to consult with independent counsel of his own
choice concerning this Agreement and has been advised to do so by the Company,
and (ii) that he has read and understands the Agreement, is fully aware of its
legal effect, and has entered into it freely based on his own judgment.
12. Exclusive. Both parties agree that this Agreement shall provide the
exclusive remedies for any breach by the Company of its terms.
The parties have duly executed this Agreement as of the date first written
above.
COMPANY: EMPLOYEE:
SkillSoft Corporation
By: /s/ Charles E. Moran /s/ Mark Townsend
------------------------------------ -------------------------
Title: President & Chief Executive Officer
------------------------------------
-8-
<PAGE> 9
EXHIBIT A
SKILLSOFT CORPORATION
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of the 26th day of June,
1998, between SkillSoft Corporation, a Delaware corporation (the "Company"), and
Mark A. Townsend (the "Recipient").
RECITALS:
WHEREAS, the Company has adopted the 1998 Stock Incentive Plan
(the "Plan"), which Plan is hereby incorporated in this Agreement by reference
and made a part of it; and
WHEREAS, the Company regards Recipient as a valuable
contributor to the Company, and has determined that it would be in the interest
of the Company and its stockholders to sell the Stock (as defined below) to the
Recipient as a reward for past efforts and an incentive for continued service
with the Company and increased achievements in the future by Recipient;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties to this Agreement hereby agree as follows:
1. Restricted Stock Purchase. Contemporaneously with the
execution of this Agreement, the Company will issue to Recipient 600,000 shares
of Common Stock of the Company (the "Stock") for a consideration of $0.175 per
share ("Purchase Price"). Payment of the aggregate Purchase Price of $105,000
for the Stock shall be made to the Company as follows: (i) $52,500 shall be paid
in cash, and (ii) $52,500 shall be made by delivery of a promissory note, in the
form attached hereto as Exhibit A, each upon execution of this Agreement.
Recipient shall pledge the non-vested Stock as security for the promissory note
pursuant to a security agreement in the form attached hereto as Exhibit B. All
shares of Stock issued hereunder shall be deemed issued to Recipient as fully
paid and nonassessable shares, and Recipient shall have all rights of a
stockholder with respect thereto, including the right to vote, receive dividends
(including stock dividends), participate in stock splits or other
recapitalizations, and exchange such shares in a merger, consolidation or other
reorganization. The Company shall pay any applicable stock transfer taxes.
2. Repurchase Option.
(a) Transfer Restrictions. Except as provided in Section 3(f),
no Stock issued to the Recipient hereunder shall be sold, transferred by gift,
pledged, hypothecated, or otherwise transferred or disposed of by the Recipient
in contravention of Section 2 or Section 3 hereof other than by will or the laws
of descent and distribution (the "Permitted Transfers"). Except for Permitted
Transfers, no Stock issued to the Recipient hereunder shall be sold, transferred
by gift, pledged, hypothecated, or otherwise transferred or disposed of by the
Recipient prior to the date when the Recipient shall become vested in such Stock
pursuant to Section 4 hereof, and such Stock shall constitute "Non-Vested Stock"
until such date. Any
<PAGE> 10
attempt to transfer Stock in violation of this Section 2 or Section 3 shall be
null and void and shall be disregarded by the Company.
(b) Repurchase Option. Non-Vested Stock shall be subject to a
repurchase option in favor of the Company (the "Repurchase Option"). The
Repurchase Option shall be subject to the following terms and conditions. In the
event of the voluntary or involuntary termination of employment of Recipient
with the Company for any reason, with or without cause (including death or
disability), the Company shall, upon the date of such termination, have an
irrevocable, exclusive option for a period of three months from such date to
repurchase any or all of the Non-Vested Stock from Recipient or any person
receiving the Non-Vested Stock by operation of law or other involuntary
transfer, at the original Purchase Price for the Non-Vested Stock.
(c) Exercise of Repurchase Option. The Repurchase Option shall
be exercised by written notice by the Company to Recipient or his or her
executor and, at the Company's option, (i) by delivery to the Recipient or his
or her executor, with such notice, of a check in the amount of the original
Purchase Price for the Non-Vested Stock being repurchased (the "Repurchase
Amount"), or (ii) in the event the Recipient is indebted to the Company for all
or a portion of the Repurchase Amount, by cancellation by the Company of an
amount of such purchase money indebtedness equal to the Repurchase Amount for
the Stock being repurchased, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals such Repurchase
Amount. Upon delivery by the Company of such notice and payment of the
Repurchase Amount in any of the ways described above, the Company shall become
the legal and beneficial owner of the Non-Vested Stock being repurchased and all
rights and interest therein or related thereto, and the Company shall have the
right to transfer to its own name the number of shares of Stock being
repurchased by the Company, without further action by Recipient.
(d) Assignment of Repurchase Option. The Repurchase Option may
be assigned by the Company to any third party.
(e) Escrow of Stock. For purposes of facilitating the
enforcement of the provisions of this Section 2, Recipient agrees, immediately
upon receipt of the certificate(s) for the Stock, to deliver such
certificate(s), together with an Assignment Separate from Certificate in the
form attached hereto as Exhibit C, executed in blank by Recipient and
Recipient's spouse (if required for transfer) with respect to each such stock
certificate, to the Secretary or Assistant Secretary of the Company, or their
designee, to hold in escrow for so long as such Stock remains subject to any
Repurchase Option of the Company pursuant to this Section 2, with the authority
to take all such actions and to effectuate all such transfers and/or releases as
may be necessary or appropriate to accomplish the objectives of this Agreement
in accordance with the terms hereof. Stock may be held for an additional period
if subject to a Security Agreement as provided in this Agreement. Recipient
hereby acknowledges that the appointment of the Secretary or Assistant Secretary
of the Company (or their designee) as the escrow holder hereunder with the
stated authorities is a material inducement to the Company to make this
Agreement and that such appointment is coupled with an interest and is
accordingly irrevocable.
2
<PAGE> 11
Recipient agrees that such escrow holder shall not be liable to any party hereto
(or to any other party) for any actions or omissions unless such escrow holder
is grossly negligent relative thereto. The escrow holder may rely upon any
letter, notice or other document executed by any signature purported to be
genuine and may resign at any time.
3. First Refusal Right.
(a) Grant of Right. The Company is hereby granted the right of
first refusal (the "First Refusal Right"), exercisable in connection with any
proposed sale or other transfer of the Stock acquired by Recipient hereunder.
For purposes of this Section 3, the term "transfer" shall include any
assignment, pledge, encumbrance or other disposition for value of the Stock
intended to be made by the Owner (defined below), but shall not include any of
the Permitted Transfers under Section 3(f). For purposes of this Section 3, the
term "Owner" shall include the Recipient or any subsequent holder of the Stock
who derives his or her chain of ownership through a transfer permitted by
Section 3(f).
(b) Notice of Intended Disposition. In the event the Owner
desires to accept a bona fide third-party offer for any or all of the Stock (the
shares subject to such offer to be hereinafter called, solely for the purposes
of this Section 3, the "Target Shares"), Owner shall promptly deliver to the
Secretary of the Company written notice (the "Disposition Notice") of the offer
and the basic terms and conditions thereof, including the proposed purchase
price.
(c) Exercise of Right. The Company (or its assignee) shall,
for a period of twenty (20) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon substantially the same terms and conditions specified
therein. Such right shall be exercisable by written notice (the "Exercise
Notice") delivered to Owner prior to the expiration of the twenty (20) day
exercise period. If the Exercise Notice pertains to all the Target Shares
specified in the Disposition Notice, then the Company (or its assignees) shall
effect the repurchase of such Target Shares, including payment of the purchase
price, not more than five (5) business days after delivery of the Exercise
Notice; and at such time Owner shall deliver to the Company the certificates
representing the Target Shares to be repurchased, each certificate to be
properly endorsed for transfer. The Target Shares so purchased shall thereupon
be canceled and cease to be issued and outstanding shares of the Company's
common stock. However, should the purchase price specified in the Disposition
Notice be payable in property other than cash or evidences of indebtedness, the
Company (or its assignees) shall have the right to pay the purchase price in the
form of cash equal in amount to the value of such property. If the Owner and the
Company (or its assignees) cannot agree on such cash value within ten (10) days
after the Company's receipt of the Disposition Notice, the valuation shall be
made by an appraiser of recognized standing selected by the Owner and the
Company (or its assignees) or, if they cannot agree on an appraiser within
twenty (20) days after the Company's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of such value. The closing shall then be held on the later of (i)
the fifth business day following
3
<PAGE> 12
delivery of the Exercise Notice or (ii) the 15th day after such cash valuation
shall have been made.
(d) Non-Exercise of Right. In the event the Exercise Notice is
not given to Owner within twenty (20) days following the date of the Company's
receipt of the Disposition Notice, Owner shall have a period of ninety (90) days
thereafter in which to sell or otherwise dispose of the Target Shares upon terms
and conditions (including the purchase price) no more favorable to the third
party purchaser than those specified in the Disposition Notice. The third-party
purchaser shall acquire the Target Shares subject to all the terms and
provisions of this Agreement. All transferees of the Target Shares shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold the
Target Shares subject to the provisions of this Agreement. In the event Owner
does not sell or otherwise dispose of the Target Shares within the specified
ninety (90) day period, the Company's First Refusal Right shall continue to be
applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with Section 5.
(e) Partial Exercise of Right. In the event the Company (or
its assignees) makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Company delivered within ninety (90) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other distribution of all the Target
Shares to a third-party purchaser in compliance with the
requirements of Section 3(d), as if the Company did not
exercise the First Refusal Right hereunder; or
(ii) sale to the Company (or its assignees) of the
portion of the Target Shares which the Company (or its
assignees) has elected to purchase, such sale to be effected
in substantial conformity with the provisions of Section 3(c).
Failure of Owner to deliver timely notification to the Company under this
Section 3(e) shall be deemed to be an election by Owner to sell the Target
Shares pursuant to alternative (ii) above.
(f) Exempt Transfers. The Company's First Refusal Right under
this Section 3 shall not apply to transfers of the Stock by will or the laws of
descent and distribution; provided, however, that all of the terms of this
Agreement shall remain in effect as to such transferred Stock. In addition,
Recipient may transfer all or a portion of the Stock to (i) a revocable trust
for the sole benefit of Recipient, his or her spouse, or his or her lineal
descendants, or (ii) to his or her spouse, siblings, lineal descendants thereof,
parents, or his or her lineal descendants subject to a nonrevocable voting trust
of a duration of 10 years without the written permission of the Company,
provided said Recipient is trustee and prior written notice (together with a
copy of the trust agreement) is given the Company within thirty (30) days
thereafter. The trustee shall hold such Stock subject to all the provisions
hereof, and shall make no further transfers other than as provided herein. Upon
the death, total disability, or termination
4
<PAGE> 13
of employment of the transferor Recipient, the successor trustee or any
cotrustee (and any subsequent transferee) shall be required to sell, transfer or
present said Stock for purchase as provided herein, for the price and on the
terms hereafter set forth as if such successor trustee and subsequent transferee
were the transferor Recipient. Transferee shall make no further transfers other
than as provided herein, and any attempted transfer in violation of this Section
3 shall be null and void and shall be disregarded by the Company. All references
herein to Stock shall be deemed to include Stock owned by any such successor
trustee or subsequent transferee, except that payment for such trustee and
transferee Stock shall be made to the trustee and transferee instead of to the
original Recipient or his or her estate.
4. Vesting. For purposes of this Agreement, the term "vest" shall
mean with respect to any share of the Stock that such share is no longer
Non-Vested Stock subject to repurchase at the original Purchase Price set forth
in Section 2. If Recipient would become vested in any fraction of a share of
Stock on any date, such fractional share shall not vest and shall remain
Non-Vested Stock until the Recipient becomes vested in the entire share.
Commencing on February 12, 1998 and continuing on the monthly anniversary of
such date, 1/36 of the Stock subject to this Agreement shall vest.
5. Lapse. The Company's First Refusal Right under Section 3 above
shall lapse and cease to have effect upon the closing of the first underwritten
public offering of Common Stock of the Company that is pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), covering the offer and sale of any Common Stock to the public
for the Company's account in a firmly underwritten offering for at least
$20,000,000.
6. Corporate Transactions.
(a) Definition. For purposes of this Section 6, a "Corporate
Transaction" shall include any of the following stockholder-approved
transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is
not the surviving entity, except for (1) a transaction the
principal purpose of which is to change the state of the
Company's incorporation, or (2) a transaction in which the
Company's stockholders immediately prior to such merger or
consolidation hold (by virtue of securities received in
exchange for their shares in the Company) securities of the
surviving entity representing more than fifty percent (50%) of
the total voting power of such surviving entity immediately
after such transaction;
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company unless the
Company's stockholders immediately prior to such sale,
transfer or other disposition hold (by virtue of securities
received in exchange for their shares in the Company)
securities of the purchaser or other transferee representing
more than fifty percent (50%) of the total voting power of
such entity immediately after such transaction; or
5
<PAGE> 14
(iii) any merger in which the Company is the
surviving entity but in which the Company's stockholders
immediately prior to such merger do not hold (by virtue of
their shares in the Company) securities of the surviving
entity held immediately prior to such transaction representing
more than fifty percent (50%) of the total voting power of the
surviving entity immediately after such transaction.
(b) Effect. In the event of any Corporate Transaction, (i) the
Company's Repurchase Option under Section 2 shall lapse and (ii) the Company's
First Refusal Right under Section 3 shall lapse.
7. Additional Securities. The term "Stock" also refers to all
securities received in replacement of the Stock, as a stock dividend or as a
result of any stock split, recapitalization, merger, reorganization, exchange or
the like, and all new or additional securities or other properties to which
Recipient is entitled by reason of Recipient's ownership of the Stock
(hereinafter called "Additional Securities"). Recipient shall be entitled to
direct the Company to exercise any warrant or option received as Additional
Securities upon supplying the funds necessary to do so, in which event the
securities so purchased shall constitute Additional Securities, but the
Recipient may not direct Company to sell any such warrant or option. If
Additional Securities consist of a convertible security, Recipient may exercise
any conversion right, and any securities so acquired shall be deemed Additional
Securities. All Stock shall be subject to the restrictions contained in this
Agreement.
8. Investment Representations.
(a) Investment Representations. This Agreement is made in
reliance upon the Recipient's representation to the Company, which by its
acceptance hereof the Recipient hereby confirms, that the shares of Stock to be
received by the Recipient will be acquired for investment for his or her own
account and not with a view to the sale or distribution of any part thereof
within the meaning of the Securities Act.
(b) Availability of Exemptions. The Recipient understands that
the Stock is not registered under the Securities Act on the basis that the sale
provided for in this Agreement and the issuance of securities hereunder is
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and that the Company's reliance on such exemption is predicated on the
Recipient's representations set forth herein.
(c) Restrictions on Transfer. The Recipient understands that
the Stock may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Stock or an
available exemption from registration under the Securities Act, the Stock must
be held indefinitely. In particular, the Recipient is aware that the Stock may
not be sold pursuant to Rule 144 or Rule 701 promulgated under the Securities
Act unless all of the conditions of the applicable Rules are met. Among the
conditions for use of Rule 144 is the availability of current information to the
public about the Company. Such information is not
6
<PAGE> 15
now available, and the Company has no present plans to make such information
available. The Recipient represents that, in the absence of an effective
registration statement covering the Stock, it will sell, transfer, or otherwise
dispose of the Stock only in a manner consistent with its representations set
forth herein and then only in accordance with the provisions of Section 8(d)
hereof.
(d) Procedure for Transfer. The Recipient agrees that in no
event will it make a transfer or disposition of any of the Stock (other than
pursuant to an effective registration statement under the Securities Act),
unless and until (i) the Recipient shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the disposition, (ii) such transfer is made in
accordance with the provisions of Section 2 and Section 3 above and (iii) if
requested by the Company, at the expense of the Recipient or transferee, the
Recipient shall have furnished to the Company either (A) an opinion of counsel,
reasonably satisfactory to the Company, to the effect that such transfer may be
made without registration under the Securities Act or (B) a "no action" letter
from the Securities and Exchange Commission to the effect that the transfer of
such securities without registration will not result in a recommendation by the
staff of the Securities and Exchange Commission that action be taken with
respect thereto. The Company will not require such a legal opinion or "no
action" letter in any transaction in compliance with Rule 144.
9. Legends; Stop Transfer.
(a) Required Legends. All certificates for shares of the Stock
shall bear the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS
OF, AND ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION AND A RIGHT OF
REPURCHASE IN FAVOR OF THE COMPANY, AS PROVIDED IN A RESTRICTED STOCK
PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE HOLDER HEREOF, OR ITS
SUCCESSOR, A COPY OF WHICH IS AVAILABLE FROM THE COMPANY."
7
<PAGE> 16
(b) Additional Legends. The certificates for shares of the
Stock shall also bear any legend required by any applicable state securities
law.
10. Lock-Up Agreement.
(a) Agreement. Recipient, if requested by the Company and the
lead underwriter of any public offering of the Common Stock or other securities
of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in any Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or acquired
on the public market after such offering) during the 180-day period following
the effective date of a registration statement of the Company filed under the
Securities Act, or such shorter period of time as the Lead Underwriter shall
specify. Recipient further agrees to sign such documents as may be requested by
the Lead Underwriter to effect the foregoing and agrees that the Company may
impose stop-transfer instructions with respect to such Common Stock subject
until the end of such period. The Company and Recipient acknowledge that each
Lead Underwriter of a public offering of the Company's stock, during the period
of such offering and for the 180-day period thereafter, is an intended
beneficiary of this Section 10.
(b) Permitted Transfers. Notwithstanding the foregoing,
Section 10(a) shall not prohibit Recipient from transferring any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
the Company's Common Stock to the extent such transfer is not otherwise
prohibited by this Agreement, either during Recipient's lifetime or on death by
will or intestacy to Recipient's immediate family or to a trust the
beneficiaries of which are exclusively Recipient and/or a member or members of
Recipient's immediate family; provided, however, that prior to any such
transfer, each transferee shall execute an agreement pursuant to which each
transferee shall agree to receive and hold such securities subject to the
provisions of Section 10 hereof. For the purposes of this paragraph, the term
"immediate family" shall mean spouse, lineal descendant, father, mother, brother
or sister of the transferor.
(c) No Amendment Without Consent of Underwriter. During the
period from identification as a Lead Underwriter in connection with any public
offering of the Company's Common Stock until the earlier of (i) the expiration
of the lock-up period specified in Section 10(a) in connection with such
offering or (ii) the abandonment of such offering by the Company and the Lead
Underwriter, the provisions of the Section 10 may not be amended or waived
except with the consent of the Lead Underwriter.
11. NO EMPLOYMENT RIGHTS. THIS AGREEMENT SHALL NOT CONFER UPON
RECIPIENT ANY RIGHT WITH RESPECT TO CONTINUATION OF HIS OR HER EMPLOYMENT WITH
THE COMPANY OR ITS AFFILIATES, NOR SHALL IT INTERFERE IN ANY WAY WITH THE RIGHT
OF RECIPIENT OR THE COMPANY, OR ANY OF ITS AFFILIATES, TO TERMINATE RECIPIENT'S
EMPLOYMENT WITH THE
8
<PAGE> 17
COMPANY AT ANY TIME FOR ANY REASON WITH OR WITHOUT CAUSE OR CHANGE THE TERMS OF
EMPLOYMENT OF RECIPIENT.
12. Section 83(b) Election. Recipient hereby represents that he or
she understands (a) the contents and requirements of a timely election made
pursuant to Section 83(b) of the Internal Revenue Code or similar provision of
state law (collectively, an "83(b) Election"), (b) the application of Section
83(b) to the purchase of Stock by Recipient pursuant to this Agreement, (c) the
nature of the election to be made by Recipient under Section 83(b) and (d) the
effect and requirements of the 83(b) Election under relevant state and local tax
laws. Recipient further represents that he or she intends to file an election
pursuant to Section 83(b), the form of which Election is attached hereto as
Exhibit D, with the Internal Revenue Service within thirty (30) days following
purchase of the Stock hereunder, and a copy of such election with his or her
federal tax return for the calendar year in which the date of this Agreement
falls. Recipient covenants to inform the Company of any change in Recipient's
state of residency. Recipient shall provide the Company with a copy of any
timely 83(b) Election. If Recipient makes a timely 83(b) Election, Recipient
shall immediately pay Company the amount necessary to satisfy any applicable
federal, state, and local income and employment tax withholding requirements. If
Recipient does not make a timely 83(b) Election, Recipient shall, either at the
time that the restrictions lapse under this Agreement or at the time withholding
is otherwise required by any applicable law, pay the Company the amount
necessary to satisfy any applicable federal, state, and local income and
employment tax withholding requirements.
13. Withholding. Recipient agrees to withholding of shares from
exercise for satisfaction of any applicable federal, state or local income tax
or employment tax withholding requirements.
14. Distributions. The Company shall disburse to Recipient all
dividends, interest and other distributions paid or made in cash or property
(other than Additional Securities) with respect to Stock and Additional
Securities, less any applicable federal or state withholding taxes.
15. Successors. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
16. Notice. Any notice or other paper required to be given or sent
pursuant to the terms of this Agreement shall be sufficiently given or served
hereunder to any party when transmitted by express or certified mail, postage
prepaid, addressed to the party to be served as follows:
Company: SkillSoft Corporation
20 Industrial Park Drive
Nashua, NH 03062
Attn: Secretary
9
<PAGE> 18
Recipient: At Recipient's address as it appears under Recipient's
signature to this Agreement, or to such other address as
Recipient may specify in writing to the Company
Any party may designate another address for receipt of notices so long as notice
is given in accordance with this Section.
17. Spousal Consent. Recipient shall cause his or her spouse to
execute the Consent of Spouse attached hereto as Exhibit E concurrently with the
execution of this Agreement or, if later, at the time Recipient becomes married.
18. Delaware Law. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Restricted Stock Purchase Agreement as of the date first above written.
SKILLSOFT CORPORATION
a Delaware corporation
By _________________________________________________
Its ________________________________________________
Recipient:
_____________________________________________________
Mark A. Townsend
Address:
8 Major Hale Drive
Framingham, MA 01701
10
<PAGE> 19
EXHIBIT A
SECURED PROMISSORY NOTE
$52,500 _________________, 1998
FOR VALUE RECEIVED, the undersigned Mark Townsend, an
individual residing at ____________________________________ ("Maker"), hereby
promises to pay to SkillSoft Corporation, a Delaware corporation ("Payee"), on
the earlier of (i) ___________________, 2003 or (ii) the date Maker ceases to be
an employee of Payee, for any reason, the principal sum of Fifty-Two Thousand
Five Hundred Dollars ($52,500), in lawful money of the United States of America
and in immediately available funds, plus simple interest from the date hereof at
the rate of _____ percent (__%) per annum, payable in full on the date such
principal amount is due, provided however, that the last said installment shall
be in an amount necessary to repay in full the unpaid principal and interest
hereof.
Interest shall be computed on the basis of a year of 365 days
for the actual number of days elapsed. Should interest not be paid when due
hereunder, it shall be added to the principal and thereafter bear like interest
as the principal, but such unpaid interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal at the maximum rate
permitted by law.
This is the Promissory Note referred to in the Security
Agreement of even date herewith between Maker and Payee, and Payee is entitled
to all the benefits provided therein.
(i) Prepayments. Maker reserves the right to prepay the
outstanding principal amount of this Note in full or in part at any time during
the term of this Note without notice and without premium or penalty.
(ii) Events of Default and Remedies. Any one of the following
occurrences shall constitute an "Event of Default" under this Note:
(a) Maker fails to make payment of full principal amount
of this Note as and when the same becomes due and payable in accordance with the
terms hereof.
(b) Maker becomes insolvent or bankrupt, commits any act
of bankruptcy, generally fails to pay its debts as they become due, becomes the
subject of any proceedings or action of any regulatory agency or any court
relating to insolvency, or makes an assignment for the benefit of its creditors,
or enters into any agreement for the composition, extension, or readjustment of
all or substantially all of his or her obligations.
(c) Maker ceases to be an employee of Payee for any
reason.
Upon the occurrence of any Event of Default hereunder,
the entire unpaid principal balance of this Note (including accrued interest)
shall, at the option of the Payee and without notice or demand of any kind to
Maker or any other person,
<PAGE> 20
immediately become due and payable, and Payee shall have and may exercise any
and all rights and remedies available to it at law or in equity.
(iii) Attorneys' Fees and Costs. Maker promises to pay on
demand all reasonable out-of-pocket costs of and expenses of Payee in connection
with the collection of amounts due hereunder, including, without limitation,
attorneys' fees incurred in connection therewith, whether or not any lawsuit is
ever filed with respect thereto.
(iv) Miscellaneous.
(a) Waiver. Maker waives diligence, presentment, protest
and demand and also notice of protest, demand, dishonor and nonpayment of this
Note. No extension of time for the payment of this Note shall affect the
original liability under this Note of Maker. The pleading of any statute of
limitations as a defense to any demand against Maker is expressly waived by
Maker to the full extent permitted by law.
(b) Setoff. The obligation to pay Payee shall be absolute
and unconditional and the rights of Payee shall not be subject to any defense,
setoff, counterclaim or recoupment or by reason of any indebtedness or liability
at any time owing by Payee to Maker.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Note as of the date first above written.
MAKER
________________________________________________
Mark Townsend
2
<PAGE> 21
EXHIBIT B
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of this
____ day of ________, ____ by and between SkillSoft Corporation, a Delaware
corporation ("Secured Party"), and Mark Townsend , an individual residing at
________________________________ ("Debtor").
In consideration of the mutual covenants contained herein and
for other good and valuable consideration, the adequacy and receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. Definitions. The following terms have the following
meanings:
(a) The term "Collateral" shall mean (i) the tangible
assets owned by Debtor as of the date hereof and described in Exhibit A attached
hereto and (ii) all Proceeds of the foregoing Collateral. For purposes of this
Security Agreement, the term "Proceeds" includes whatever is receivable or
received when Collateral or proceeds thereof is sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes, without limitation, all rights to payment, including return premiums,
with respect to any insurance relating thereto.
(b) The term "Obligations" shall mean all of the unpaid
principal sum of that certain Secured Promissory Note in the original principal
amount of $______ of even date herewith (the "Note") evidencing the indebtedness
of Debtor to Secured Party.
(c) The term "UCC" shall mean the Uniform Commercial Code
as the same may, from time to time, be in effect in the State of New Hampshire.
(d) Capitalized terms used herein shall have the meaning
set forth in the UCC unless otherwise set forth herein.
(e) The term "Event of Default" shall have the meaning set
forth in the Note.
2. Grant of Security Interest. As collateral security for
prompt and complete payment and performance under the Obligations, Debtor hereby
assigns, conveys, grants, pledges and transfers to and creates in favor of
Secured Party a security interest in the Collateral, including all Proceeds of
the foregoing and all accessions to, substitutions and replacements for the
foregoing. Debtor shall, upon execution of this Security Agreement, and of the
Note as Payee (as such term is defined in the Note), deliver all certificates
representing the Collateral together with a stock power executed in blank by
Debtor and Debtor's spouse with respect to such stock certificates to the
Secretary of Secured Party to be held in escrow until full satisfaction of
Debtor's obligations hereunder and under the Note with the authority to take all
such actions and to effectuate all such transfers and/or releases as may be
necessary or appropriate to accomplish the objectives of this Security Agreement
and the Note. In the event that the Proceeds from the disposition
<PAGE> 22
of the Collateral are insufficient to fully satisfy the amounts due and owing
under the Note, Debtor shall, subject to the limitations set forth in the UCC,
be liable for any deficiency.
3. Representations, Warranties and Covenants. Debtor
represents, warrants and covenants that:
(a) Title. Apart from the security interest in the
Collateral granted to Secured Party hereunder, Debtor has good and valid title
to the Collateral, free and clear of any and all liens, charges, claims,
security interests or encumbrances of any kind whatsoever.
(b) Transfer of Collateral. Debtor shall not sell, assign,
transfer, encumber or otherwise dispose of any of the Collateral or any interest
therein without the prior written consent of Secured Party. If any such
encumbrance is imposed, Debtor shall give Secured Party immediate written
notice.
(c) Perfection. Debtor shall, upon demand, do all such acts
as Secured Party may reasonably request to establish and maintain a perfected
security interest in the Collateral, including, without limitation, executing a
financing statement in the form prescribed by the New Hampshire Secretary of
State.
4. Remedies. Upon the occurrence of any Event of Default
hereunder, the entire unpaid principal balance of the Note shall, at the option
of the Payee and without notice or demand of any kind to Debtor or any other
person, immediately become due and payable, and Secured Party may proceed to
exercise any and all of the rights and remedies of a secured party under the UCC
and any other remedies available at law or in equity, with respect to the
Collateral.
IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be executed as of the date first above written.
SECURED PARTY
SKILLSOFT CORPORATION
a Delaware corporation
By:__________________________________
Its:_________________________________
DEBTOR
_____________________________________
Mark Townsend
2
<PAGE> 23
EXHIBIT A
DESCRIPTION OF COLLATERAL
300,000 shares of Common Stock of SkillSoft Corporation
<PAGE> 24
EXHIBIT C
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, Mark Townsend hereby sells, assigns and
transfers unto SkillSoft Corporation, a Delaware corporation (the "Company"),
300,000 (Three Hundred Thousand) shares of the Common Stock of the Company,
standing in his or her name on the books of SkillSoft Corporation, represented
by Certificate No. __ herewith, and does hereby irrevocably constitute and
appoint ________________ attorney to transfer the said stock in the books of
SkillSoft Corporation with full power of substitution.
DATED: ________________
_______________________________________
(Signature)
_______________________________________
(Printed Name)
<PAGE> 25
EXHIBIT D
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the
Internal Revenue Code, to include in gross income for 1998 the amount of any
compensation taxable in connection with the taxpayer's receipt of the property
described below;
1. The name, address, taxpayer identification number and
taxable year of the undersigned are:
TAXPAYER'S NAME: MARK TOWNSEND
SPOUSE'S NAME:
TAXPAYER'S SOCIAL SECURITY NO.:
SPOUSE'S SOCIAL SECURITY NO.:
TAXABLE YEAR: Calendar Year 1998
ADDRESS:
2. The property which is the subject of this election is:
600,000 shares of Common Stock of SkillSoft Corporation, a Delaware corporation.
3. The property was transferred to the undersigned on
______________, 1998.
4. The property is subject to the following restriction: Right
of repurchase by SkillSoft Corporation.
5. The fair market value of the property at the time of
transfer (determined without regard to any restriction other than a restriction
which by its terms will never lapse) is: $0.175 per share x 600,000 shares =
$105,000.
6. The undersigned paid $0.175 per share x 600,000 shares for
the property transferred or a total of $105,000.
The undersigned has submitted a copy of this statement to the
person for whom the services were performed in connection with the undersigned's
receipt of the above-described property. The undersigned taxpayer is the person
performing the services in connection with the transfer of said property.
<PAGE> 26
The undersigned will file this election with the Internal
Revenue Service office in which he or she files his or her annual income tax
return not later than 30 days after the date of transfer of the property. A copy
of the election also will be furnished to the person for whom the services were
performed. Additionally, the undersigned will include a copy of the election
with his or her income tax return for the taxable year in which property is
transferred. The undersigned understands that this election will also be
effective as an election under New Hampshire law.
Dated: _________________________ _________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________________ _________________________________________
Spouse of Taxpayer
2
<PAGE> 27
EXHIBIT E
CONSENT OF SPOUSE
I, _____________________, spouse of Mark Townsend, have read
and approved the foregoing Agreement. In consideration of the right of my spouse
to purchase shares of SkillSoft Corporation, as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights of the Agreement insofar as I may have any rights under such
community property laws of the State of New Hampshire or similar laws relating
to marital property in effect in the state of our residence as of the date of
the signing of the foregoing Agreement.
Dated: ____________________________By:_________________________________________
[Signature]
____________________________________________
Mark Townsend
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into as of February 2, 1998, between SkillSoft
Corporation, a Delaware corporation (the "Company"), and Thomas McDonald
("Employee").
RECITALS
Company desires to obtain the services of Employee, on its own behalf and on
behalf of all existing and future Affiliated Companies (defined to mean any
corporation or other business entity or entities that directly or indirectly
controls, is controlled by, or is under common control with the Company), and
Employee desires to secure employment from the Company upon the following terms
and conditions.
AGREEMENT
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. Position, Period of Employment.
(a) Period of Employment. The Company hereby employs Employee to render
services to the Company in the position and with the duties and responsibilities
described in Section 1(b) for the period (the "Period of Employment") commencing
on the date of this Agreement and ending upon the date this Agreement is
terminated in accordance with Section 3 below. Except as provided in Section 3
below, the Company shall pay Employee the compensation to which he is entitled
under Section 2(a) through the end of the Period of Employment, and thereafter
Company's obligations hereunder to pay or otherwise provide compensation and
benefits to Employee shall end.
(b) Position. Employee hereby accepts employment with the Company as Chief
Financial Officer, Vice President - Finance. Employee shall devote his best
efforts and his full time and attention to the performance of the services
customarily incident to such office and to such other services as may be
reasonably requested by the Board of Directors of the Company (the "Board").
During the Period of Employment, Employee will not accept any other employment
of any nature, excluding personal business carried on outside regular business
hours that does not materially interfere with the services required by this
Agreement. The Company shall retain full direction and control of the means and
methods by which Employee performs the above services and, subject to the terms
of this Section 1(b), of the place(s) at which such services are to be rendered.
During the term of this agreement, employee's principal location shall be in New
Hampshire.
<PAGE> 2
(c) Non-Compete/Conflict of Interest. Employee, during the Period of
Employment (as defined below), will not engage, directly or indirectly as an
employee, director, consultant, shareholder, partner or independent contractor
or in any other capacity, in any other business activity (whether or not pursued
for pecuniary advantage) that is competitive with, or that might place him in a
competing position to that of the Company or any other corporation or entity
that directly or indirectly is controlled by the Company (an "Affiliated
Company"); provided, however, that Employee may make passive personal
investments (not exceeding ownership of more than one (1) percent of the equity
interest in any company) in publicly-held companies that may compete with the
Company or any Affiliated Company.
2. Compensation, Benefits, Expense.
(a) Compensation. In consideration of the services to be rendered
hereunder, including, without limitation, services to any Affiliated Company,
Employee shall be paid an amount equal to $5,625 (five thousand six hundred
twenty-five dollars) twice per month, payable at the times and pursuant to the
procedures regularly established, and as they may be amended, by the Company
during the course of this Agreement. This rate shall be reviewed annually, in
accordance with the Company's salary review practices, and increased, in the
Company's sole discretion, to reflect increases in the cost of living and such
other increases as are awarded in accordance with the Company's regular salary
review practices.
(b) Restricted Stock. The Company shall sell Employee and Employee shall
purchase from Company 300,000 shares of the Company's Common Stock upon the
terms and conditions set forth in that certain Restrictive Stock Purchase
Agreement in the form attached hereto as Exhibit A, which the Company shall
execute and deliver to Employee concurrently with the signing by both parties of
this Agreement.
(c) Bonus. Employee shall be eligible to participate in such bonus plans
as the Company may from time to time adopt for the benefit of similarly situated
employees of the Company. Employee's right to receive any such bonus shall be
subject to the terms of any Company bonus plan for which he may become a
participant and the terms determined by the Board or a Committee thereof
designating him as a participant or granting him an award thereunder.
(d) Vacation. Employee shall be entitled to vacation in accordance with
the Company's vacation policies for similarly situated employees, as such
policies may be amended from time to time.
-2-
<PAGE> 3
(e) Benefits. As he becomes eligible therefor, the Company shall provide
Employee with the right to participate in and to receive benefits from all
present and future life, accident, disability, medical, pension, and savings
plans and all similar benefits made available generally to executives similarly
situated employees of the Company. The amount and extent of benefits to which
Employee is entitled shall be governed by the specific benefit plan, as it may
be amended from time to time.
(f) Expense. The Company shall reimburse Employee for reasonable travel
and other business expenses incurred by Employee in the performance of his
duties hereunder in accordance with the Company's general policies, as they may
be amended from time to time during the course of this Agreement.
3. Termination of Employment.
(a) By Death. The Period of Employment shall terminate automatically upon
the death of the Employee. The Company shall pay to the Employee's beneficiaries
or estate, as appropriate, the compensation to which he is entitled pursuant to
Section 2(a) through the end of the month in which death occurs. Thereafter, the
Company's obligations hereunder shall terminate. Nothing in this Section shall
affect any entitlement of the Employee's heirs to the benefits of any life
insurance plan.
(b) By Disability. If, in the sole opinion of the Company's Board of
Directors (the "Board"), the Employee shall be prevented from properly
performing his duties hereunder by reason of any physical or mental incapacity
for a period of more than one hundred and twenty (120) consecutive days in any
twelve-month period, then, to the extent permitted by law, the Period of
Employment shall terminate on and the compensation to which Employee is entitled
pursuant to Section 2(a) shall be paid up through the last day of the month in
which the one hundred and twentieth day of incapacity occurs, and thereafter the
Company's obligations hereunder shall terminate. Nothing in this Section shall
affect Employee's rights under any disability plan in which he is a participant.
(c) By Company For Cause. The Company may terminate, without liability,
the Period of Employment for Cause (as defined below) at any time with no
advance notice to Employee. The Company shall pay Employee the compensation to
which he is entitled pursuant to Section 2(a) prorated through the date of
termination. Termination shall be for Cause if: (i) because of any intentional
act or failure to act by Employee which, in the reasonable opinion of the Board,
is in bad faith and to the detriment of the Company or any Affiliated Company;
(ii) in the reasonable opinion of the Board, Employee refuses or fails to act in
accordance with any direction or order of the Board; (iii) in the reasonable
opinion of the Board, Employee shall fail in any material respect and on a
continuing basis to perform his
-3-
<PAGE> 4
duties pursuant to Section 1 hereof (other than as a result of disability as
provided for in Section 3(b)) and shall not have cured such failure following
thirty (30) days notice from a majority of the members of the Board; (iv)
Employee is convicted of a crime relating to his employment by the Company or
that has a material adverse effect on the Company or, in the reasonable opinion
of the Board, Employee's ability to perform services hereunder; or (v) because
Employee, in the reasonable opinion of the Board, breaches any material term of
this Agreement, provided the breach continues for a period of five (5) days
after Employee receives written notice of that breach from the Board. Employee
hereby agrees that the Company may terminate his employment with the Company
under this Section 3(c) without regard (1) to any general or specific policies
(whether written or oral) of the Company relating to the employment or
termination of its employees, or (2) to any statements made to Employee, whether
made orally or contained in any document (other than this Agreement), pertaining
to Employee's relationship with the Company.
(d) By Employee For Good Reason. Employee may terminate, without
liability, the Period of Employment for Good Reason (as defined below) upon
twenty (20) days' advance written notice to the Company. The Company shall pay
Employee the compensation to which he is entitled pursuant to Section 2(a)
through the end of the notice period plus the Severance Benefits (as defined in
Section 3(f) below) and thereafter all obligations of the Company hereunder
shall terminate. Good Reason shall exist if (i) there is an assignment to the
Employee of any duties materially inconsistent with or which constitute a
material change in the Employee's position, duties, responsibilities, or status
with the Company, or a material change in the Employee's reporting
responsibilities, title, or offices; or removal of the Employee from any of such
positions, except in connection with the termination of the Period of Employment
for Cause, or due to disability, early or normal retirement as defined by the
Company's pension plan, death, or termination of the Period of Employment by the
Employee other than for Good Reason (provided that removal and/or failure to
re-elect Employee to the Board in accordance with Section 1(c) shall not be
deemed Good Reason for purposes of this Section 3 (d)); (ii) there is a
reduction by the Company in the Employee's annual salary then in effect other
than a reduction similar in percentage to a reduction generally applicable to
similarly situated employees of the Company; or (iii) the Company acts in any
way that would adversely affect the Employee's participation in or materially
reduce the Employee's benefit under any benefit plan of the Company in which the
Employee is participating or deprive the Employee of any material fringe benefit
enjoyed by the Employee except those changes generally affecting similarly
situated employees of the Company.
(e) At Will. At any time, either the Company or the Employee may
terminate, without liability, the Period of Employment for any reason, with or
without cause, on written notice to the other party. In the event Employee
elects to terminate the Period of Employment pursuant to this Section 3(e),
Employee shall
-4-
<PAGE> 5
give the Company not less than two (2) months' notice of such termination. If
the Employee terminates his employment pursuant to this Section 3(e), the
Company shall have the option, in its sole discretion, to terminate Employee
immediately without the running of the notice period. If the Employee terminates
his employment pursuant to this Section 3(e), the Company shall pay Employee the
compensation to which he is entitled pursuant to Section 2(a) through the end of
the notice period or through the day upon which any early termination is elected
by the Company pursuant to the foregoing sentence, and thereafter all
obligations of the Company shall terminate. In the event the Company elects to
terminate the Period of Employment pursuant to this Section 3(e), the Company
shall give Employee not less than three months notice of such termination.
Employee hereby agrees that the Company may dismiss him under this Section 3(e)
without regard (i) to any general or specific policies (whether written or oral)
of the Company relating to the employment or termination of its employees, or
(ii) to any statements made to Employee, whether made orally or contained in any
document, pertaining to Employee's relationship with the Company.
(f) Severance Benefits.
(1) Employee shall only be entitled to Severance Benefits hereunder in
the event that the Period of Employment shall be terminated (i) by Employee in
accordance with Section 3(d) and subject to the terms of said Section 3(d) or
(ii) by the Company in accordance with Section 3(e) and subject to the terms of
said Section 3(e). Upon full payment of and upon providing of such Severance
Benefits, Employee shall be deemed to have released the Company and each of its
officers, directors and agents from any and all claims, liabilities or causes of
action in favor of the Employee arising in connection with his prior employment
by the Company.
(2) For purposes of this Agreement, "Severance Benefits" shall mean a
continuation by the Company for a period of six (6) months of: (i) Employee's
salary payable in accordance with the Company's payroll procedures pursuant to
Section 2(a) following termination; (ii) those benefits to which Employee is
entitled pursuant to Section 2(f) hereof, including but not limited to medical
benefits substantially similar to those provided Employee prior to termination
of employment; and (iii) the vesting and right to exercise any stock options
held by Employee at the time of termination. As a condition precedent to the
continued vesting and exercisability of Employee's stock options during said six
(6) month period, Employee agrees to perform, on request from the Company, up to
ten (10) hours of consulting service per month during said six (6) month period.
Subject to Employee fulfilling his consulting obligations to the Company as
provided in this Section 3(f)(2) during the Severance Period (as defined-below),
Employee shall be deemed to continue as employee of the Company during the
Severance Period for the purpose of such stock options, and such stock options
shall thereafter terminate in
-5-
<PAGE> 6
accordance with their terms following expiration of the Severance Period. No
additional compensation shall be payable by the Company for such consulting
services beyond the Severance Benefits. The period in which Employee shall be
entitled to Severance Benefits shall hereinafter be referred to as the
"Severance Period." Notwithstanding any other provision herein, if Employee
accepts employment at any entity or engages in any business activity that is or
may be competitive with the Company (or any affiliate thereof) prior to the end
of such six (6) month period, Employee shall then immediately inform the Company
of such employment and immediately cease to be eligible for any continuing
Severance Benefits, including any continued salary payments, medical benefits
and option or share vesting.
(g) Termination Obligations.
(1) Employee hereby acknowledges and agrees that all personal property,
including, without limitation, all books, manuals, records, reports, notes,
contracts, lists, blueprints, and other documents, or materials, or copies
thereof, and equipment furnished to or prepared by Employee in the course of or
incident to his employment, belong to the Company and shall be promptly returned
to the Company upon termination of the Period of Employment. Following
termination, the Employee will not retain any written or other tangible material
containing any proprietary information of the Company.
(2) Upon termination of the Period of Employment, the Employee shall be
deemed to have resigned from all offices and directorships then held with the
Company or any Affiliated Company.
4. Proprietary Information Agreement. As a condition to his employment with
the Company, Employee shall execute and deliver a copy of the Company's standard
form Employee Proprietary Information and Inventions Agreement. Any breach by
Employee of such agreement shall be deemed a breach of this Agreement for
purposes of Section 3(c) hereof. Employee's obligations under such Employee
Proprietary Information and Inventions Agreement shall survive any termination
of the Period of Employment.
5. Assignment; Successors and Assigns. Employee agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement, nor shall Employee's rights be subject to encumbrance or the claims
of creditors. Any purported assignment, transfer, or delegation shall be null
and void. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement and the performance of its
obligations hereunder to any successor in interest or any Affiliated
-6-
<PAGE> 7
Company. Subject to the foregoing, this Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective heirs, legal
representatives, successors, and permitted assigns, and shall not benefit any
person or entity other than those enumerated above.
6. Notices. All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand or mailed, postage prepaid, by certified or registered
mail, return receipt requested, and addressed to the Company at: 9 Chickadee
Court, Bedford, New Hampshire 03110 or to the Employee at: 218 W. Hickory,
Hinsdale, IL 60521.
Notice of change of address shall be effective only when done in accordance
with this Section.
7. Entire Agreement. The terms of this Agreement are intended by the parties
to be the final expression of their agreement with respect to the employment of
Employee by the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding involving this Agreement.
8. Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by the Employee and by a
duly authorized representative of the Company other than Employee. By an
instrument in writing similarly executed, either party may waive compliance by
the other party with any provision of this Agreement that such other party was
or is obligated to comply with or perform, provided, however, that such waiver
shall not operate as a waiver of, or estoppel with respect to, any other or
subsequent failure. No failure to exercise and no delay in exercising any right,
remedy, or power hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, or power hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy, or
power provided herein or by law or in equity.
9. Severability; Enforcement. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect. It is the
intention of the parties that the covenants contained in Section 1(d) shall be
enforced to the greatest extent (but to no greater extent) in times area, and
degree of participation as is permitted by the law of that jurisdiction whose
law is found to be applicable to any acts allegedly in breach of these
covenants. It being the purpose of this Agreement to govern
-7-
<PAGE> 8
competition by Employee anywhere throughout the world, these covenants shall be
governed by and construed according to that law (from among those jurisdictions
arguably applicable to this Agreement and those in which a breach of this
Agreement is alleged to have occurred or to be threatened) which best gives them
effect.
10. Governing Law. Subject to Section 9 hereof, the validity, interpretation,
enforceability, and performance of this Agreement shall be governed by and
construed in accordance with the law of the State of New Hampshire.
11. Employee Acknowledgment. Employee acknowledges (i) that he has consulted
with or has had the opportunity to consult with independent counsel of his own
choice concerning this Agreement and has been advised to do so by the Company,
and (ii) that he has read and understands the Agreement, is fully aware of its
legal effect, and has entered into it freely based on his own judgment.
12. Exclusive. Both parties agree that this Agreement shall provide the
exclusive remedies for any breach by the Company of its terms.
The parties have duly executed this Agreement as of the date first written
above.
COMPANY: EMPLOYEE:
SkillSoft Corporation
By: /s/ Charles E. Moran /s/ Thomas McDonald
------------------------------------ ----------------------------
Title: President & Chief Executive Officer
------------------------------------
-8-
<PAGE> 9
EXHIBIT A
SKILLSOFT CORPORATION
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of the 24th day of June
1998, between SkillSoft Corporation, a Delaware corporation (the "Company"), and
Thomas J. McDonald (the "Recipient").
RECITALS:
WHEREAS, the Company has adopted the 1998 Stock Incentive Plan
(the "Plan"), which Plan is hereby incorporated in this Agreement by reference
and made a part of it; and
WHEREAS, the Company regards Recipient as a valuable
contributor to the Company, and has determined that it would be in the interest
of the Company and its stockholders to sell the Stock (as defined below) to the
Recipient as a reward for past efforts and an incentive for continued service
with the Company and increased achievements in the future by Recipient;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties to this Agreement hereby agree as follows:
1. Restricted Stock Purchase. Contemporaneously with the
execution of this Agreement, the Company will issue to Recipient 300,000 shares
of Common Stock of the Company (the "Stock") for a consideration of $0.175 per
share ("Purchase Price"). Payment of the aggregate Purchase Price of $52,500 for
the Stock shall be made to the Company as follows: (i) $26,250 shall be paid in
cash, and (ii) $26,250 shall be made by delivery of a promissory note, in the
form attached hereto as Exhibit A, each upon execution of this Agreement.
Recipient shall pledge the non-vested Stock as security for the promissory note
pursuant to a security agreement in the form attached hereto as Exhibit B. All
shares of Stock issued hereunder shall be deemed issued to Recipient as fully
paid and nonassessable shares, and Recipient shall have all rights of a
stockholder with respect thereto, including the right to vote, receive dividends
(including stock dividends), participate in stock splits or other
recapitalizations, and exchange such shares in a merger, consolidation or other
reorganization. The Company shall pay any applicable stock transfer taxes.
2. Repurchase Option.
(a) Transfer Restrictions. Except as provided in
Section 3(f), no Stock issued to the Recipient hereunder shall be sold,
transferred by gift, pledged, hypothecated, or otherwise transferred or disposed
of by the Recipient in contravention of Section 2 or Section 3 hereof other than
by will or the laws of descent and distribution (the "Permitted Transfers").
Except for Permitted Transfers, no Stock issued to the Recipient hereunder shall
be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or
disposed of by the
1
<PAGE> 10
Recipient prior to the date when the Recipient shall become vested in such Stock
pursuant to Section 4 hereof, and such Stock shall constitute "Non-Vested Stock"
until such date. Any attempt to transfer Stock in violation of this Section 2 or
Section 3 shall be null and void and shall be disregarded by the Company.
(b) Repurchase Option. Non-Vested Stock shall be
subject to a repurchase option in favor of the Company (the "Repurchase
Option"). The Repurchase Option shall be subject to the following terms and
conditions. In the event of the voluntary or involuntary termination of
employment of Recipient with the Company for any reason, with or without cause
(including death or disability), the Company shall, upon the date of such
termination, have an irrevocable, exclusive option for a period of three months
from such date to repurchase any or all of the Non-Vested Stock from Recipient
or any person receiving the Non-Vested Stock by operation of law or other
involuntary transfer, at the original Purchase Price for the Non-Vested Stock.
(c) Exercise of Repurchase Option. The Repurchase
Option shall be exercised by written notice by the Company to Recipient or his
or her executor and, at the Company's option, (i) by delivery to the Recipient
or his or her executor, with such notice, of a check in the amount of the
original Purchase Price for the Non-Vested Stock being repurchased (the
"Repurchase Amount"), or (ii) in the event the Recipient is indebted to the
Company for all or a portion of the Repurchase Amount, by cancellation by the
Company of an amount of such purchase money indebtedness equal to the Repurchase
Amount for the Stock being repurchased, or (iii) by a combination of (i) and
(ii) so that the combined payment and cancellation of indebtedness equals such
Repurchase Amount. Upon delivery by the Company of such notice and payment of
the Repurchase Amount in any of the ways described above, the Company shall
become the legal and beneficial owner of the Non-Vested Stock being repurchased
and all rights and interest therein or related thereto, and the Company shall
have the right to transfer to its own name the number of shares of Stock being
repurchased by the Company, without further action by Recipient.
(d) Assignment of Repurchase Option. The Repurchase
Option may be assigned by the Company to any third party.
(e) Escrow of Stock. For purposes of facilitating the
enforcement of the provisions of this Section 2, Recipient agrees, immediately
upon receipt of the certificate(s) for the Stock, to deliver such
certificate(s), together with an Assignment Separate from Certificate in the
form attached hereto as Exhibit C, executed in blank by Recipient and
Recipient's spouse (if required for transfer) with respect to each such stock
certificate, to the Secretary or Assistant Secretary of the Company, or their
designee, to hold in escrow for so long as such Stock remains subject to any
Repurchase Option of the Company pursuant to this Section 2, with the authority
to take all such actions and to effectuate all such transfers and/or releases as
may be necessary or appropriate to accomplish the objectives of this Agreement
in accordance with the terms hereof. Stock may be held for an additional period
if subject to a Security Agreement as provided in this Agreement. Recipient
hereby acknowledges that the appointment of the Secretary or Assistant Secretary
of the Company (or their designee) as the escrow holder
2
<PAGE> 11
hereunder with the stated authorities is a material inducement to the Company to
make this Agreement and that such appointment is coupled with an interest and is
accordingly irrevocable. Recipient agrees that such escrow holder shall not be
liable to any party hereto (or to any other party) for any actions or omissions
unless such escrow holder is grossly negligent relative thereto. The escrow
holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine and may resign at any time.
3. First Refusal Right.
(a) Grant of Right. The Company is hereby granted the
right of first refusal (the "First Refusal Right"), exercisable in connection
with any proposed sale or other transfer of the Stock acquired by Recipient
hereunder. For purposes of this Section 3, the term "transfer" shall include any
assignment, pledge, encumbrance or other disposition for value of the Stock
intended to be made by the Owner (defined below), but shall not include any of
the Permitted Transfers under Section 3(f). For purposes of this Section 3, the
term "Owner" shall include the Recipient or any subsequent holder of the Stock
who derives his or her chain of ownership through a transfer permitted by
Section 3(f).
(b) Notice of Intended Disposition. In the event the
Owner desires to accept a bona fide third-party offer for any or all of the
Stock (the shares subject to such offer to be hereinafter called, solely for the
purposes of this Section 3, the "Target Shares"), Owner shall promptly deliver
to the Secretary of the Company written notice (the "Disposition Notice") of the
offer and the basic terms and conditions thereof, including the proposed
purchase price.
(c) Exercise of Right. The Company (or its assignee)
shall, for a period of twenty (20) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares specified
in the Disposition Notice upon substantially the same terms and conditions
specified therein. Such right shall be exercisable by written notice (the
"Exercise Notice") delivered to Owner prior to the expiration of the twenty (20)
day exercise period. If the Exercise Notice pertains to all the Target Shares
specified in the Disposition Notice, then the Company (or its assignees) shall
effect the repurchase of such Target Shares, including payment of the purchase
price, not more than five (5) business days after delivery of the Exercise
Notice; and at such time Owner shall deliver to the Company the certificates
representing the Target Shares to be repurchased, each certificate to be
properly endorsed for transfer. The Target Shares so purchased shall thereupon
be canceled and cease to be issued and outstanding shares of the Company's
common stock. However, should the purchase price specified in the Disposition
Notice be payable in property other than cash or evidences of indebtedness, the
Company (or its assignees) shall have the right to pay the purchase price in the
form of cash equal in amount to the value of such property. If the Owner and the
Company (or its assignees) cannot agree on such cash value within ten (10) days
after the Company's receipt of the Disposition Notice, the valuation shall be
made by an appraiser of recognized standing selected by the Owner and the
Company (or its assignees) or, if they cannot agree on an appraiser within
twenty (20) days after the Company's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of
3
<PAGE> 12
such value. The closing shall then be held on the later of (i) the fifth
business day following delivery of the Exercise Notice or (ii) the 15th day
after such cash valuation shall have been made.
(d) Non-Exercise of Right. In the event the Exercise
Notice is not given to Owner within twenty (20) days following the date of the
Company's receipt of the Disposition Notice, Owner shall have a period of ninety
(90) days thereafter in which to sell or otherwise dispose of the Target Shares
upon terms and conditions (including the purchase price) no more favorable to
the third party purchaser than those specified in the Disposition Notice. The
third-party purchaser shall acquire the Target Shares subject to all the terms
and provisions of this Agreement. All transferees of the Target Shares shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold the
Target Shares subject to the provisions of this Agreement. In the event Owner
does not sell or otherwise dispose of the Target Shares within the specified
ninety (90) day period, the Company's First Refusal Right shall continue to be
applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with Section 5.
(e) Partial Exercise of Right. In the event the
Company (or its assignees) makes a timely exercise of the First Refusal Right
with respect to a portion, but not all, of the Target Shares specified in the
Disposition Notice, Owner shall have the option, exercisable by written notice
to the Company delivered within ninety (90) days after the date of the
Disposition Notice, to effect the sale of the Target Shares pursuant to one of
the following alternatives:
(i) sale or other distribution of all the
Target Shares to a third-party purchaser in compliance with the
requirements of Section 3(d), as if the Company did not exercise the
First Refusal Right hereunder; or
(ii) sale to the Company (or its assignees)
of the portion of the Target Shares which the Company (or its
assignees) has elected to purchase, such sale to be effected in
substantial conformity with the provisions of Section 3(c).
Failure of Owner to deliver timely notification to the Company under this
Section 3(e) shall be deemed to be an election by Owner to sell the Target
Shares pursuant to alternative (ii) above.
(f) Exempt Transfers. The Company's First Refusal
Right under this Section 3 shall not apply to transfers of the Stock by will or
the laws of descent and distribution; provided, however, that all of the terms
of this Agreement shall remain in effect as to such transferred Stock. In
addition, Recipient may transfer all or a portion of the Stock to (i) a
revocable trust for the sole benefit of Recipient, his or her spouse, or his or
her lineal descendants, or (ii) to his or her spouse, siblings, lineal
descendants thereof, parents, or his or her lineal descendants subject to a
nonrevocable voting trust of a duration of 10 years without the written
permission of the Company, provided said Recipient is trustee and prior written
notice (together with a copy of the trust agreement) is given the Company within
thirty (30) days thereafter. The trustee shall hold such Stock subject to all
the provisions hereof, and shall make
4
<PAGE> 13
no further transfers other than as provided herein. Upon the death, total
disability, or termination of employment of the transferor Recipient, the
successor trustee or any cotrustee (and any subsequent transferee) shall be
required to sell, transfer or present said Stock for purchase as provided
herein, for the price and on the terms hereafter set forth as if such successor
trustee and subsequent transferee were the transferor Recipient. Transferee
shall make no further transfers other than as provided herein, and any attempted
transfer in violation of this Section 3 shall be null and void and shall be
disregarded by the Company. All references herein to Stock shall be deemed to
include Stock owned by any such successor trustee or subsequent transferee,
except that payment for such trustee and transferee Stock shall be made to the
trustee and transferee instead of to the original Recipient or his or her
estate.
4. Vesting. For purposes of this Agreement, the term "vest"
shall mean with respect to any share of the Stock that such share is no longer
Non-Vested Stock subject to repurchase at the original Purchase Price set forth
in Section 2. If Recipient would become vested in any fraction of a share of
Stock on any date, such fractional share shall not vest and shall remain
Non-Vested Stock until the Recipient becomes vested in the entire share.
Commencing on March 1, 1998 and continuing on the monthly anniversary of such
date, 1/36 of the Stock subject to this Agreement shall vest.
5. Lapse. The Company's First Refusal Right under Section 3
above shall lapse and cease to have effect upon the closing of the first
underwritten public offering of Common Stock of the Company that is pursuant to
a registration statement filed with, and declared effective by, the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), covering the offer and sale of any Common Stock to the public
for the Company's account in a firmly underwritten offering for at least
$20,000,000.
6. Corporate Transactions.
(a) Definition. For purposes of this Section 6, a
"Corporate Transaction" shall include any of the following stockholder-approved
transactions to which the Company is a party:
(i) a merger or consolidation in which the
Company is not the surviving entity, except for (1) a transaction the
principal purpose of which is to change the state of the Company's
incorporation, or (2) a transaction in which the Company's stockholders
immediately prior to such merger or consolidation hold (by virtue of
securities received in exchange for their shares in the Company)
securities of the surviving entity representing more than fifty percent
(50%) of the total voting power of such surviving entity immediately
after such transaction;
(ii) the sale, transfer or other disposition
of all or substantially all of the assets of the Company unless the
Company's stockholders immediately prior to such sale, transfer or
other disposition hold (by virtue of securities received in exchange
for their shares in the Company) securities of the purchaser
5
<PAGE> 14
or other transferee representing more than fifty percent (50%) of the
total voting power of such entity immediately after such transaction;
or
(iii) any merger in which the Company is the
surviving entity but in which the Company's stockholders immediately
prior to such merger do not hold (by virtue of their shares in the
Company) securities of the surviving entity held immediately prior to
such transaction representing more than fifty percent (50%) of the
total voting power of the surviving entity immediately after such
transaction.
(b) Effect. In the event of any Corporate
Transaction, (i) the Company's Repurchase Option under Section 2 shall lapse and
(ii) the Company's First Refusal Right under Section 3 shall lapse.
7. Additional Securities. The term "Stock" also refers to all
securities received in replacement of the Stock, as a stock dividend or as a
result of any stock split, recapitalization, merger, reorganization, exchange or
the like, and all new or additional securities or other properties to which
Recipient is entitled by reason of Recipient's ownership of the Stock
(hereinafter called "Additional Securities"). Recipient shall be entitled to
direct the Company to exercise any warrant or option received as Additional
Securities upon supplying the funds necessary to do so, in which event the
securities so purchased shall constitute Additional Securities, but the
Recipient may not direct Company to sell any such warrant or option. If
Additional Securities consist of a convertible security, Recipient may exercise
any conversion right, and any securities so acquired shall be deemed Additional
Securities. All Stock shall be subject to the restrictions contained in this
Agreement.
8. Investment Representations.
(a) Investment Representations. This Agreement is
made in reliance upon the Recipient's representation to the Company, which by
its acceptance hereof the Recipient hereby confirms, that the shares of Stock to
be received by the Recipient will be acquired for investment for his or her own
account and not with a view to the sale or distribution of any part thereof
within the meaning of the Securities Act.
(b) Availability of Exemptions. The Recipient
understands that the Stock is not registered under the Securities Act on the
basis that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, and that the Company's reliance on such
exemption is predicated on the Recipient's representations set forth herein.
(c) Restrictions on Transfer. The Recipient
understands that the Stock may not be sold, transferred, or otherwise disposed
of without registration under the Securities Act or an exemption therefrom, and
that in the absence of an effective registration statement covering the Stock or
an available exemption from registration under the Securities Act, the Stock
must be held indefinitely. In particular, the Recipient is aware that the Stock
may not be sold pursuant to Rule 144 or Rule 701 promulgated under the
Securities Act unless all of the
6
<PAGE> 15
conditions of the applicable Rules are met. Among the conditions for use of Rule
144 is the availability of current information to the public about the Company.
Such information is not now available, and the Company has no present plans to
make such information available. The Recipient represents that, in the absence
of an effective registration statement covering the Stock, it will sell,
transfer, or otherwise dispose of the Stock only in a manner consistent with its
representations set forth herein and then only in accordance with the provisions
of Section 8(d) hereof.
(d) Procedure for Transfer. The Recipient agrees that
in no event will it make a transfer or disposition of any of the Stock (other
than pursuant to an effective registration statement under the Securities Act),
unless and until (i) the Recipient shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the disposition, (ii) such transfer is made in
accordance with the provisions of Section 2 and Section 3 above and (iii) if
requested by the Company, at the expense of the Recipient or transferee, the
Recipient shall have furnished to the Company either (A) an opinion of counsel,
reasonably satisfactory to the Company, to the effect that such transfer may be
made without registration under the Securities Act or (B) a "no action" letter
from the Securities and Exchange Commission to the effect that the transfer of
such securities without registration will not result in a recommendation by the
staff of the Securities and Exchange Commission that action be taken with
respect thereto. The Company will not require such a legal opinion or "no
action" letter in any transaction in compliance with Rule 144.
9. Legends; Stop Transfer.
(a) Required Legends. All certificates for shares of
the Stock shall bear the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. THESE SECURITIES HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY
THE TERMS OF, AND ARE SUBJECT TO A RIGHT OF FIRST REFUSAL
OPTION AND A RIGHT OF REPURCHASE IN FAVOR OF THE COMPANY, AS
PROVIDED IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE
COMPANY AND THE HOLDER HEREOF, OR ITS SUCCESSOR, A COPY OF
WHICH IS AVAILABLE FROM THE COMPANY."
7
<PAGE> 16
(b) Additional Legends. The certificates for shares
of the Stock shall also bear any legend required by any applicable state
securities law.
10. Lock-Up Agreement.
(a) Agreement. Recipient, if requested by the Company
and the lead underwriter of any public offering of the Common Stock or other
securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees
not to sell, contract to sell, grant any option to purchase, transfer the
economic risk of ownership in, make any short sale of, pledge or otherwise
transfer or dispose of any interest in any Common Stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Common Stock (except Common Stock included in such public
offering or acquired on the public market after such offering) during the
180-day period following the effective date of a registration statement of the
Company filed under the Securities Act, or such shorter period of time as the
Lead Underwriter shall specify. Recipient further agrees to sign such documents
as may be requested by the Lead Underwriter to effect the foregoing and agrees
that the Company may impose stop-transfer instructions with respect to such
Common Stock subject until the end of such period. The Company and Recipient
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 10.
(b) Permitted Transfers. Notwithstanding the
foregoing, Section 10(a) shall not prohibit Recipient from transferring any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for the Company's Common Stock to the extent such transfer is not
otherwise prohibited by this Agreement, either during Recipient's lifetime or on
death by will or intestacy to Recipient's immediate family or to a trust the
beneficiaries of which are exclusively Recipient and/or a member or members of
Recipient's immediate family; provided, however, that prior to any such
transfer, each transferee shall execute an agreement pursuant to which each
transferee shall agree to receive and hold such securities subject to the
provisions of Section 10 hereof. For the purposes of this paragraph, the term
"immediate family" shall mean spouse, lineal descendant, father, mother, brother
or sister of the transferor.
(c) No Amendment Without Consent of Underwriter.
During the period from identification as a Lead Underwriter in connection with
any public offering of the Company's Common Stock until the earlier of (i) the
expiration of the lock-up period specified in Section 10(a) in connection with
such offering or (ii) the abandonment of such offering by the Company and the
Lead Underwriter, the provisions of the Section 10 may not be amended or waived
except with the consent of the Lead Underwriter.
11. NO EMPLOYMENT RIGHTS. THIS AGREEMENT SHALL NOT CONFER UPON
RECIPIENT ANY RIGHT WITH RESPECT TO CONTINUATION OF HIS OR HER EMPLOYMENT WITH
THE COMPANY OR ITS AFFILIATES, NOR SHALL IT INTERFERE IN ANY WAY WITH THE RIGHT
OF RECIPIENT OR THE COMPANY, OR ANY OF ITS AFFILIATES, TO TERMINATE RECIPIENT'S
EMPLOYMENT WITH THE
8
<PAGE> 17
COMPANY AT ANY TIME FOR ANY REASON WITH OR WITHOUT CAUSE OR CHANGE THE TERMS OF
EMPLOYMENT OF RECIPIENT.
12. Section 83(b) Election. Recipient hereby represents that
he or she understands (a) the contents and requirements of a timely election
made pursuant to Section 83(b) of the Internal Revenue Code or similar provision
of state law (collectively, an "83(b) Election"), (b) the application of Section
83(b) to the purchase of Stock by Recipient pursuant to this Agreement, (c) the
nature of the election to be made by Recipient under Section 83(b) and (d) the
effect and requirements of the 83(b) Election under relevant state and local tax
laws. Recipient further represents that he or she intends to file an election
pursuant to Section 83(b), the form of which Election is attached hereto as
Exhibit D, with the Internal Revenue Service within thirty (30) days following
purchase of the Stock hereunder, and a copy of such election with his or her
federal tax return for the calendar year in which the date of this Agreement
falls. Recipient covenants to inform the Company of any change in Recipient's
state of residency. Recipient shall provide the Company with a copy of any
timely 83(b) Election. If Recipient makes a timely 83(b) Election, Recipient
shall immediately pay Company the amount necessary to satisfy any applicable
federal, state, and local income and employment tax withholding requirements. If
Recipient does not make a timely 83(b) Election, Recipient shall, either at the
time that the restrictions lapse under this Agreement or at the time withholding
is otherwise required by any applicable law, pay the Company the amount
necessary to satisfy any applicable federal, state, and local income and
employment tax withholding requirements.
13. Withholding. Recipient agrees to withholding of shares
from exercise for satisfaction of any applicable federal, state or local income
tax or employment tax withholding requirements.
14. Distributions. The Company shall disburse to Recipient all
dividends, interest and other distributions paid or made in cash or property
(other than Additional Securities) with respect to Stock and Additional
Securities, less any applicable federal or state withholding taxes.
15. Successors. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
16. Notice. Any notice or other paper required to be given or
sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by express or certified mail,
postage prepaid, addressed to the party to be served as follows:
Company: SkillSoft Corporation
20 Industrial Park Drive
Nashua, NH 03062
Attn: Secretary
9
<PAGE> 18
Recipient: At Recipient's address as it appears under
Recipient's signature to this Agreement, or
to such other address as Recipient may
specify in writing to the Company
Any party may designate another address for receipt of notices so long as notice
is given in accordance with this Section.
17. Spousal Consent. Recipient shall cause his or her spouse
to execute the Consent of Spouse attached hereto as Exhibit E concurrently with
the execution of this Agreement or, if later, at the time Recipient becomes
married.
18. Delaware Law. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Restricted Stock Purchase Agreement as of the date first above written.
SKILLSOFT CORPORATION
a Delaware corporation
By _________________________________________
Its ________________________________________
Recipient:
_____________________________________________
Thomas J. McDonald
Address:
218 W. Hickory
Hinsdale, IL 60521
10
<PAGE> 19
EXHIBIT A
SECURED PROMISSORY NOTE
$26,250 _________________, 1998
FOR VALUE RECEIVED, the undersigned Thomas McDonald, an
individual residing at _______________________________________ ("Maker"), hereby
promises to pay to SkillSoft Corporation, a Delaware corporation ("Payee"), on
the earlier of (i) ________, 2003 or (ii) the date Maker ceases to be an
employee of Payee, for any reason, the principal sum of Twenty-Six Thousand Two
Hundred Fifty Dollars ($26,250), in lawful money of the United States of America
and in immediately available funds, plus simple interest from the date hereof at
the rate of _____ percent (__%) per annum, payable in full on the date such
principal amount is due, provided however, that the last said installment shall
be in an amount necessary to repay in full the unpaid principal and interest
hereof.
Interest shall be computed on the basis of a year of 365 days
for the actual number of days elapsed. Should interest not be paid when due
hereunder, it shall be added to the principal and thereafter bear like interest
as the principal, but such unpaid interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal at the maximum rate
permitted by law.
This is the Promissory Note referred to in the Security
Agreement of even date herewith between Maker and Payee, and Payee is entitled
to all the benefits provided therein.
(i) Prepayments. Maker reserves the right to prepay the
outstanding principal amount of this Note in full or in part at any time during
the term of this Note without notice and without premium or penalty.
(ii) Events of Default and Remedies. Any one of the following
occurrences shall constitute an "Event of Default" under this Note:
(a) Maker fails to make payment of full principal
amount of this Note as and when the same becomes due and payable in accordance
with the terms hereof.
(b) Maker becomes insolvent or bankrupt, commits any
act of bankruptcy, generally fails to pay its debts as they become due, becomes
the subject of any proceedings or action of any regulatory agency or any court
relating to insolvency, or makes an assignment for the benefit of its creditors,
or enters into any agreement for the composition, extension, or readjustment of
all or substantially all of his or her obligations.
(c) Maker ceases to be an employee of Payee for any
reason.
Upon the occurrence of any Event of Default
hereunder, the entire unpaid principal balance of this Note (including accrued
interest) shall, at the option of the Payee and without notice or demand of any
kind to Maker or any other person,
<PAGE> 20
immediately become due and payable, and Payee shall have and may exercise any
and all rights and remedies available to it at law or in equity.
(iii) Attorneys' Fees and Costs. Maker promises to pay on
demand all reasonable out-of-pocket costs of and expenses of Payee in connection
with the collection of amounts due hereunder, including, without limitation,
attorneys' fees incurred in connection therewith, whether or not any lawsuit is
ever filed with respect thereto.
(iv) Miscellaneous.
(a) Waiver. Maker waives diligence, presentment,
protest and demand and also notice of protest, demand, dishonor and nonpayment
of this Note. No extension of time for the payment of this Note shall affect the
original liability under this Note of Maker. The pleading of any statute of
limitations as a defense to any demand against Maker is expressly waived by
Maker to the full extent permitted by law.
(b) Setoff. The obligation to pay Payee shall be
absolute and unconditional and the rights of Payee shall not be subject to any
defense, setoff, counterclaim or recoupment or by reason of any indebtedness or
liability at any time owing by Payee to Maker.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Note as of the date first above written.
MAKER
_____________________________________________
Thomas McDonald
2
<PAGE> 21
EXHIBIT B
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of this
____ day of ________, 1998, by and between SkillSoft Corporation, a Delaware
corporation ("Secured Party"), and Thomas McDonald, an individual residing at
_______________________________________ ("Debtor").
In consideration of the mutual covenants contained herein and
for other good and valuable consideration, the adequacy and receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. Definitions. The following terms have the following
meanings:
(a) The term "Collateral" shall mean (i) the tangible
assets owned by Debtor as of the date hereof and described in Exhibit A attached
hereto and (ii) all Proceeds of the foregoing Collateral. For purposes of this
Security Agreement, the term "Proceeds" includes whatever is receivable or
received when Collateral or proceeds thereof is sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes, without limitation, all rights to payment, including return premiums,
with respect to any insurance relating thereto.
(b) The term "Obligations" shall mean all of the
unpaid principal sum of that certain Secured Promissory Note in the original
principal amount of $26,250 of even date herewith (the "Note") evidencing the
indebtedness of Debtor to Secured Party.
(c) The term "UCC" shall mean the Uniform Commercial
Code as the same may, from time to time, be in effect in the State of New
Hampshire.
(d) Capitalized terms used herein shall have the
meaning set forth in the UCC unless otherwise set forth herein.
(e) The term "Event of Default" shall have the
meaning set forth in the Note.
2. Grant of Security Interest. As collateral security for
prompt and complete payment and performance under the Obligations, Debtor hereby
assigns, conveys, grants, pledges and transfers to and creates in favor of
Secured Party a security interest in the Collateral, including all Proceeds of
the foregoing and all accessions to, substitutions and replacements for the
foregoing. Debtor shall, upon execution of this Security Agreement, and of the
Note as Payee (as such term is defined in the Note), deliver all certificates
representing the Collateral together with a stock power executed in blank by
Debtor and Debtor's spouse with respect to such stock certificates to the
Secretary of Secured Party to be held in escrow until full satisfaction of
Debtor's obligations hereunder and under the Note with the authority to take all
such actions and to effectuate all such transfers and/or releases as may be
necessary or appropriate to accomplish the objectives of this Security Agreement
and the Note. In the event that the Proceeds from the disposition
<PAGE> 22
of the Collateral are insufficient to fully satisfy the amounts due and owing
under the Note, Debtor shall, subject to the limitations set forth in the UCC,
be liable for any deficiency.
3. Representations, Warranties and Covenants. Debtor
represents, warrants and covenants that:
(a) Title. Apart from the security interest in the
Collateral granted to Secured Party hereunder, Debtor has good and valid title
to the Collateral, free and clear of any and all liens, charges, claims,
security interests or encumbrances of any kind whatsoever.
(b) Transfer of Collateral. Debtor shall not sell,
assign, transfer, encumber or otherwise dispose of any of the Collateral or any
interest therein without the prior written consent of Secured Party. If any such
encumbrance is imposed, Debtor shall give Secured Party immediate written
notice.
(c) Perfection. Debtor shall, upon demand, do all
such acts as Secured Party may reasonably request to establish and maintain a
perfected security interest in the Collateral, including, without limitation,
executing a financing statement in the form prescribed by the New Hampshire
Secretary of State.
4. Remedies. Upon the occurrence of any Event of Default
hereunder, the entire unpaid principal balance of the Note shall, at the option
of the Payee and without notice or demand of any kind to Debtor or any other
person, immediately become due and payable, and Secured Party may proceed to
exercise any and all of the rights and remedies of a secured party under the UCC
and any other remedies available at law or in equity, with respect to the
Collateral.
IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be executed as of the date first above written.
SECURED PARTY
SKILLSOFT CORPORATION
a Delaware corporation
By:_____________________________________
Its:____________________________________
DEBTOR
________________________________________
Thomas McDonald
2
<PAGE> 23
EXHIBIT A
DESCRIPTION OF COLLATERAL
150,000 shares of Common Stock of SkillSoft Corporation
<PAGE> 24
EXHIBIT C
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, Thomas McDonald hereby sells, assigns and
transfers unto SkillSoft Corporation, a Delaware corporation (the "Company"),
150,000 (One Hundred Fifty Thousand) shares of the Common Stock of the Company,
standing in his or her name on the books of SkillSoft Corporation, represented
by Certificate No. __ herewith, and does hereby irrevocably constitute and
appoint ________________ attorney to transfer the said stock in the books of
SkillSoft Corporation with full power of substitution.
DATED: ________________
_____________________________________________
(Signature)
_____________________________________________
(Printed Name)
<PAGE> 25
EXHIBIT D
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the
Internal Revenue Code, to include in gross income for 1998 the amount of any
compensation taxable in connection with the taxpayer's receipt of the property
described below;
1. The name, address, taxpayer identification number and
taxable year of the undersigned are:
TAXPAYER'S NAME: Thomas J. McDonald
SPOUSE'S NAME: Danielle McDonald
TAXPAYER'S SOCIAL SECURITY NO.: ###-##-####
SPOUSE'S SOCIAL SECURITY NO.: ###-##-####
TAXABLE YEAR: Calendar Year 1998
ADDRESS:
2. The property which is the subject of this election is:
300,000 shares of Common Stock of SkillSoft Corporation, a Delaware corporation.
3. The property was transferred to the undersigned on June 24,
1998.
4. The property is subject to the following restriction: Upon
a termination of the undersigned's employment with the Company, the Company has
the right to repurchase unvested Shares at the original purchase price. The
Shares shall vest, and the Company's repurchase right shall lapse as follows:
The Shares subject to the Agreement shall vest in thirty-six (36) monthly
installments commencing on the monthly anniversary date of the Agreement and
continuing thereafter monthly until all Shares covered by the Agreement have
become vested.
5. The fair market value of the property at the time of
transfer (determined without regard to any restriction other than a restriction
which by its terms will never lapse) is: $0.175 per share x 300,000 shares =
$52,500.
6. The undersigned paid $0.175 per share x 300,000 shares for
the property transferred or a total of $52,500.
The undersigned has submitted a copy of this statement to the
person for whom the services were performed in connection with the undersigned's
receipt of the above-described property. The undersigned taxpayer is the person
performing the services in connection with the transfer of said property.
<PAGE> 26
The undersigned will file this election with the Internal
Revenue Service office in which he or she files his or her annual income tax
return not later than 30 days after the date of transfer of the property. A copy
of the election also will be furnished to the person for whom the services were
performed. Additionally, the undersigned will include a copy of the election
with his or her income tax return for the taxable year in which property is
transferred. The undersigned understands that this election will also be
effective as an election under New Hampshire law.
Dated: ____________________________ ________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ____________________________ ________________________________________
Spouse of Taxpayer
2
<PAGE> 27
EXHIBIT E
CONSENT OF SPOUSE
I, _____________________, spouse of Thomas McDonald, have read
and approved the foregoing Agreement. In consideration of the right of my spouse
to purchase shares of SkillSoft Corporation, as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights of the Agreement insofar as I may have any rights under such
community property laws of the State of New Hampshire or similar laws relating
to marital property in effect in the state of our residence as of the date of
the signing of the foregoing Agreement.
Dated: _________________________________________ By:________________________
[Signature]
___________________________
Thomas McDonald
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into as of April 9, 1998 between SkillSoft
Corporation, a Delaware corporation (the "Company"), and Jerry Nine
("Employee").
RECITALS
Company desires to obtain the services of Employee, on its own behalf
and on behalf of all existing and future Affiliated Companies (defined to mean
any corporation or other business entity or entities that directly or indirectly
controls, is controlled by, or is under common-control with the Company), and
Employee desires to secure employment from the Company upon the following terms
and conditions.
AGREEMENT
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. Position, Period of Employment.
(a) Period of Employment. The Company hereby employs Employee
to render services to the Company in the position and with the duties and
responsibilities described in Section 1(b) for the period (the "Period of
Employment") commencing on the date of this Agreement and ending upon the date
this Agreement is terminated in accordance with Section 3 below. Except as
provided in Section 3 below, the Company shall pay Employee the compensation to
which he is entitled under Section 2(a) through the end of the Period of
Employment, and thereafter Company's obligations hereunder to pay or otherwise
provide compensation and benefits to Employee shall end.
(b) Position. Employee hereby accepts employment with the
Company as Vice President - Sales & Marketing. Employee shall devote his best
efforts and his full time and attention to the performance of the services
customarily incident to such office and to such other services as may be
reasonably requested by the Board of Directors of the Company (the "Board").
During the Period of Employment, Employee will not accept any other employment
of any nature, excluding personal business carried on outside regular business
hours that does not materially interfere with the services required by this
Agreement. The Company shall retain full direction and control of the means and
methods by which Employee performs the above services and, subject to the terms
of this Section 1(b), of the place(s) at which such services are to be rendered.
During the term of this agreement, employee's principal location shall be in New
Hampshire.
<PAGE> 2
(c) Non-Compete/Conflict of Interest. Employee, during the
Period of Employment (as defined below), will not engage, directly or indirectly
as an employee, director, consultant, shareholder, partner or independent
contractor or in any other capacity, in any other business activity (whether or
not pursued for pecuniary advantage) that is competitive with, or that might
place him in a competing position to that of the Company or any other
corporation or entity that directly or indirectly is controlled by the Company
(an "Affiliated Company"); provided, however, that Employee may make passive
personal investments (not exceeding ownership of more than one (1) percent of
the equity interest in any company) in publicly-held companies that may compete
with the Company or any Affiliated Company.
2. Compensation, Benefits, Expenses.
(a) Compensation. In consideration of the services to be
rendered hereunder, including, without limitation, services to any Affiliated
Company, Employee shall be paid an amount equal to $6,042 (six thousand
forty-two dollars) twice per month, payable at the times and pursuant to the
procedures regularly established, and as they may be amended, by the Company
during the course of this Agreement. This rate shall be renewed annually, in
accordance with the Company's salary review practices, and increased, in the
Company's sole discretion, to reflect increases in the cost of living and such
other increases as are awarded in accordance with the Company's regular salary
review practices.
(b) Restricted Stock. The Company shall sell Employee and
Employee shall purchase from the Company 700,000 shares of the Company's Common
Stock upon the terms and conditions set forth in that certain Restricted Stock
Purchase Agreement in the form attached hereto as Exhibit A, which the Company
shall execute and deliver to Employee concurrently with the signing by both
parties of this Agreement.
(c) Bonus. Employee shall be eligible to participate in such
bonus plans as the Company may from time to time adopt for the benefit of
similarly situated employees of the Company. Employee's right to receive any
such bonus shall be subject to the terms of any Company bonus plan for which he
may become a participant and the terms determined by the Board or a Committee
thereof designating him as a participant or granting him an award thereunder.
(d) Vacation. Employee shall be entitled to vacation in
accordance with the Company's vacation policies for similarly situated
employees, as such policies may be amended from time to time.
(e) Benefits. As he becomes eligible therefor, the Company
shall provide Employee with the right to participate in and to receive benefits
from all
2
<PAGE> 3
present and future life, accident, disability, medical, pension, and savings
plans and all similar benefits made available generally to executives similarly
situated employees of the Company. The amount and extent of benefits to which
Employee is entitled shall be governed by the specific benefit plan, as it may
be amended from time to time.
(f) Expenses. The Company shall reimburse Employee for
reasonable travel and other business expenses incurred by Employee in the
performance of his duties hereunder in accordance with the Company's general
policies, as they may be amended from time to time during the course of this
Agreement.
3. Termination of Employment
(a) By Death. The Period of Employment shall terminate
automatically upon the death of the Employee. The Company shall pay to the
Employee's beneficiaries or estate, as appropriate, the compensation to which he
is entitled pursuant to Section 2(a) through the end of the month in which death
occurs. Thereafter, the Company's obligations hereunder shall terminate. Nothing
in this Section shall affect any entitlement of the Employee's heirs to the
benefits of any life insurance plan.
(b) By Disability. If, in the sole opinion of the Company's
Board of Directors (the "Board"), the Employee shall be prevented from properly
performing his duties hereunder by reason of any physical or mental incapacity
for a period of more than one hundred and twenty (120) consecutive days in any
twelve-month period, then, to the extent permitted by law, the Period of
Employment shall terminate on and the compensation to which Employee is entitled
pursuant to Section 2(a) shall be paid up through the last day of the month in
which the one hundred and twentieth day of incapacity occurs, and thereafter the
Company's obligations hereunder shall terminate. Nothing in this Section shall
affect Employee's rights under any disability plan in which he is a participant.
(c) By Company for Cause. The Company may terminate, without
liability, the Period of Employment for Cause (as defined below) at any time
with no advance notice to Employee. The Company shall pay Employee the
compensation to which he is entitled pursuant to Section 2(a) prorated through
the date of termination. Termination shall be for Cause if: (i) because of any
intentional act or failure to act by Employee which, in the reasonable opinion
of the Board, is in bad faith and to the detriment of the Company or any
Affiliated Company; (ii) in the reasonable opinion of the Board, Employee
refuses or fails to act in accordance with any direction or order of the Board;
(iii) in the reasonable opinion of the Board, Employee shall fail in any
material respect and on a continuing basis to perform his duties pursuant to
Section 1 hereof (other than as a result of disability as provided
3
<PAGE> 4
for in Section 3(b)) and shall not have cured such failure following thirty (30)
days notice from a majority of the members of the Board; (iv) Employee is
convicted of a crime relating to his employment by the Company or that has a
material adverse effect on the Company or, in the reasonable opinion of the
Board, Employee's ability to perform services hereunder; or (v) because
Employee, in the reasonable opinion of the Board, breaches any material term of
this Agreement, provided the breach continues for a period of five (5) days
after Employee receives written notice of that breach from the Board. Employee
hereby agrees that the Company may terminate his employment with the Company
under this Section 3(c) without regard (1) to any general or specific policies
(whether written or oral) of the Company relating to the employment or
termination of its employees, or (2) to any statements made to Employee, whether
made orally or contained in any document (other than this Agreement), pertaining
to Employee's relationship with the Company.
(d) By Employee For Good Reason. Employee may terminate,
without liability, the Period of Employment for Good Reason (as defined below)
upon twenty (20) days' advance written notice to the Company. The Company shall
pay Employee the compensation to which he is entitled pursuant to Section 2(a)
through the end of the notice period plus the Severance Benefits (as defined in
Section 3(f) below) and thereafter all obligations of the Company hereunder
shall terminate. Good Reason shall exist if (i) there is an assignment to the
Employee of any duties materially inconsistent with or which constitute a
material change in the Employee's position, duties, responsibilities, or status
with the Company, or a material change in the Employee's reporting
responsibilities, title, or offices; or removal of the Employee from any of such
positions, except in connection with the termination of the Period of Employment
for Cause, or due to disability, early or normal retirement as defined by the
Company's pension plan, death, or termination of the Period of Employment by the
Employee other than for Good Reason (provided that removal and/or failure to
re-elect Employee to the Board in accordance with Section 1(c) shall not be
deemed Good Reason for purposes of this Section 3(d)); (ii) there is a reduction
by the Company in the Employee's annual salary then in effect other than a
reduction similar in percentage to a reduction generally applicable to similarly
situated employees of the Company; or (iii) the Company acts in any way that
would adversely affect the Employee's participation in or materially reduce the
Employee's benefit under any benefit plan of the Company in which the Employee
is participating or deprive the Employee of any material fringe benefit enjoyed
by the Employee except those changes generally affecting similarly situated
employees of the Company.
(e) At Will. At any time, either the Company or the Employee
may terminate, without liability, the Period of Employment for any reason, with
or without cause, on written notice to the other party. In the event Employee
elects to terminate the Period of Employment pursuant to this Section 3(e),
Employee shall give the Company not less than two (2) months' notice of such
termination. If the
4
<PAGE> 5
Employee terminates his employment pursuant to this Section 3(e), the Company
shall have the option, in its sole discretion, to terminate Employee immediately
without the running of the notice period. If the Employee terminates his
employment pursuant to this Section 3(e), the Company shall pay Employee the
compensation to which he is entitled pursuant to Section 2(a) through the end of
the notice period or through the day upon which any early termination is elected
by the Company pursuant to the foregoing sentence, and thereafter all
obligations of the Company shall terminate. In the event the Company elects to
terminate the Period of Employment pursuant to this Section 3(e), the Company
shall give Employee not less than three months notice of such termination.
Employee hereby agrees that the Company may dismiss him under this Section 3(e)
without regard (i) to any general or specific policies (whether written or oral)
of the Company relating to the employment or termination of its employees, or
(ii) to any statements made to Employee, whether made orally or contained in any
document, pertaining to Employee's relationship with the Company.
(f) Severance Benefits.
(1) Employee shall only be entitled to Severance
Benefits hereunder in the event that the Period of Employment shall be
terminated (i) by Employee in accordance with Section 3(d) and subject to the
terms of said Section 3(d) or (ii) by the Company in accordance with Section
3(e) and subject to the terms of said Section 3(e). Upon full payment of and
upon providing of such Severance Benefits, Employee shall be deemed to have
released the Company and each of its officers, directors and agents from any and
all claims, liabilities or causes of action in favor of the Employee arising in
connection with his prior employment by the Company.
(2) For purposes of this Agreement, "Severance
Benefits" shall mean a continuation by the Company for a period of six (6)
months of: (i) Employee's salary payable in accordance with the Company's
payroll procedures pursuant to Section 2(a) following termination; (ii) those
benefits to which Employee is entitled pursuant to Section 2(f) hereof,
including but not limited to medical benefits substantially similar to those
provided Employee prior to termination of employment; and (iii) the vesting and
right to exercise any stock options held by Employee at the time of termination.
As a condition precedent to the continued vesting and exercisability of
Employee's stock options during said six (6) month period, Employee agrees to
perform, on request from the Company, up to ten (10) hours of consulting service
month during said six (6) month period. Subject to Employee fulfilling his
consulting obligations to the Company as provided in this Section 3(f)(2) during
the Severance Period (as defined below), Employee shall be deemed to continue as
employee of the Company during the Severance Period for the purpose of such
stock options, and such stock options shall thereafter terminate in accordance
with their terms following expiration of the Severance Period. No
5
<PAGE> 6
additional compensation shall be payable by the Company for such consulting
services beyond the Severance Benefits. The period in which Employee shall be
entitled to Severance Benefits shall hereinafter be referred to as the
"Severance Period." Notwithstanding any other provision herein, if Employee
accepts employment at any entity or engages in any business activity that is or
may be competitive with the Company (or any affiliate thereof) prior to the end
of such six (6) month period, Employee shall then immediately inform the Company
of such employment and immediately cease to be eligible for any continuing
Severance Benefits, including any continued salary payments, medical benefits
and option or share vesting.
(g) Termination Obligations.
(1) Employee hereby acknowledges and agrees that all
personal property, including, without limitation, all books, manuals, records,
reports, notes, contracts, lists, blueprints, and other documents, or materials,
or copies thereof, and equipment furnished to or prepared by Employee in the
course of or incident to his employment, belong to the Company and shall be
promptly returned to the Company upon termination of the Period of Employment.
Following termination, the Employee will not retain any written or other
tangible material containing any proprietary information of the Company.
(2) Upon termination of the Period of Employment, the
Employee shall be deemed to have resigned from all offices and directorships
then held with the Company or any Affiliated Company.
4. Proprietary Information Agreement. As a condition to his employment
with the Company, Employee shall execute and deliver a copy of the Company's
standard form Employee Proprietary Information and Inventions Agreement. Any
breath by Employee of such agreement shall be deemed a breach of this Agreement
for purposes of Section 3(c) hereof. Employee's obligations under such Employee
Proprietary Information and Inventions Agreement shall survive any termination
of the Period of Employment.
5. Assignment; Successors and Assigns. Employee agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement, nor shall Employee's rights be subject to encumbrance or the claims
of creditors. Any purported assignment, transfer, or delegation shall be null
and void. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement and the performance of its
obligations hereunder to any successor in interest or any Affiliated Company.
Subject to the foregoing, this Agreement shall be binding upon and shall
6
<PAGE> 7
inure to the benefit of the parties and their respective heirs, legal
representatives, successors, and permitted assigns, and shall not benefit any
person or entity other than those enumerated above.
6. Notices. All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand or mailed, postage prepaid, by certified or registered
mail, return receipt requested, and addressed to the Company at: 20 Industrial
Park Drive, Nashua, New Hampshire 03062 or to the Employee at: 127 Wallace Rd.,
Bedford, New Hampshire, 03110.
Notice of change of address shall be effective only when done in
accordance with this Section.
7. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of Employee by the Company and may not be contradicted by evidence of
any prior or contemporaneous agreement. The parties further intend that this
Agreement shall constitute the complete and exclusive statement of its terms and
that no extrinsic evidence whatsoever may be introduced in any judicial,
administrative, or other legal proceeding involving this Agreement.
8. Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by the Employee and by a
duly authorized representative of the Company other than Employee. By an
instrument in writing similarly executed, either party may waive compliance by
the other party with any provision of this Agreement that such other party was
or is obligated to comply with or perform, provided, however, that such waiver
shall not operate as a waiver of, or estoppel with respect to, any other or
subsequent failure. No failure to exercise and no delay in exercising any right,
remedy, or power hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, or power hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy, or
power provided herein or by law or in equity.
9. Severability; Enforcement. If any provision of this Agreement, or
the application thereof to any person, place, or circumstance, shall be held by
a court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect. It is the
intention of the Parties that the covenants contained in Section 1(d) shall be
enforced to the greatest extent (but to no greater extent) in times area, and
degree of participation as is permitted by the law of that jurisdiction whose
law is found to be applicable to any acts allegedly in breach of these
covenants. It being the purpose of this Agreement to govern
7
<PAGE> 8
competition by Employee anywhere throughout the world, these covenants shall be
governed by and construed according to that law (from among those jurisdictions
arguably applicable to this Agreement and those in which a breach of this
Agreement is alleged to have occurred or to be threatened) which best gives them
effect.
10. Governing Law. Subject to Section 9 hereof, the validity,
interpretation, enforceability, and performance of this Agreement shall be
governed by and construed in accordance with the law of the State of New
Hampshire.
11. Employee Acknowledgment. Employee acknowledges (i) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement and has been advised to do so by the
Company, and (ii) that he has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on his own judgment.
12. Exclusive. Both parties agree that this Agreement shall provide the
exclusive remedies for any breach by the Company of its terms.
The parties have duly executed this Agreement as of the date first
written above.
COMPANY: EMPLOYEE:
SkillSoft Corporation
By: /s/ Charles E. Moran /s/ Jerry Nine
--------------------------- ----------------------
Title: President & Chief Executive Officer
--------------------------------------
8
<PAGE> 9
EXHIBIT A
SKILLSOFT CORPORATION
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of the 19th day of June
1998, between SkillSoft Corporation, a Delaware corporation (the "Company"), and
Jerald A. Nine (the "Recipient").
RECITALS:
WHEREAS, the Company has adopted the 1998 Stock Incentive Plan
(the "Plan"), which Plan is hereby incorporated in this Agreement by reference
and made a part of it; and
WHEREAS, the Company regards Recipient as a valuable
contributor to the Company, and has determined that it would be in the interest
of the Company and its stockholders to sell the Stock (as defined below) to the
Recipient as a reward for past efforts and an incentive for continued service
with the Company and increased achievements in the future by Recipient;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties to this Agreement hereby agree as follows:
1. Restricted Stock Purchase. Contemporaneously with the
execution of this Agreement, the Company will issue to Recipient 700,000 shares
of Common Stock of the Company (the "Stock") for a consideration of $0.175 per
share ("Purchase Price"). Payment of the aggregate Purchase Price of $122,500
for the Stock shall be made to the Company as follows: (i) $61,250 shall be paid
in cash, and (ii) $61,250 shall be made by delivery of a promissory note, in the
form attached hereto as Exhibit A, each upon execution of this Agreement.
Recipient shall pledge the non-vested Stock as security for the promissory note
pursuant to a security agreement in the form attached hereto as Exhibit B. All
shares of Stock issued hereunder shall be deemed issued to Recipient as fully
paid and nonassessable shares, and Recipient shall have all rights of a
stockholder with respect thereto, including the right to vote, receive dividends
(including stock dividends), participate in stock splits or other
recapitalizations, and exchange such shares in a merger, consolidation or other
reorganization. The Company shall pay any applicable stock transfer taxes.
2. Repurchase Option.
(a) Transfer Restrictions. Except as provided in Section
3(f), no Stock issued to the Recipient hereunder shall be sold, transferred by
gift, pledged, hypothecated, or otherwise transferred or disposed of by the
Recipient in contravention of Section 2 or Section 3 hereof other than by will
or the laws of descent and distribution (the "Permitted Transfers"). Except for
Permitted Transfers, no Stock issued to the Recipient hereunder shall be sold,
transferred by gift, pledged, hypothecated, or otherwise transferred or disposed
of by the
1
<PAGE> 10
Recipient prior to the date when the Recipient shall become vested in such Stock
pursuant to Section 4 hereof, and such Stock shall constitute "Non-Vested Stock"
until such date. Any attempt to transfer Stock in violation of this Section 2 or
Section 3 shall be null and void and shall be disregarded by the Company.
(b) Repurchase Option. Non-Vested Stock shall be subject to
a repurchase option in favor of the Company (the "Repurchase Option"). The
Repurchase Option shall be subject to the following terms and conditions. In the
event of the voluntary or involuntary termination of employment of Recipient
with the Company for any reason, with or without cause (including death or
disability), the Company shall, upon the date of such termination, have an
irrevocable, exclusive option for a period of three months from such date to
repurchase any or all of the Non-Vested Stock from Recipient or any person
receiving the Non-Vested Stock by operation of law or other involuntary
transfer, at the original Purchase Price for the Non-Vested Stock.
(c) Exercise of Repurchase Option. The Repurchase Option
shall be exercised by written notice by the Company to Recipient or his or her
executor and, at the Company's option, (i) by delivery to the Recipient or his
or her executor, with such notice, of a check in the amount of the original
Purchase Price for the Non-Vested Stock being repurchased (the "Repurchase
Amount"), or (ii) in the event the Recipient is indebted to the Company for all
or a portion of the Repurchase Amount, by cancellation by the Company of an
amount of such purchase money indebtedness equal to the Repurchase Amount for
the Stock being repurchased, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals such Repurchase
Amount. Upon delivery by the Company of such notice and payment of the
Repurchase Amount in any of the ways described above, the Company shall become
the legal and beneficial owner of the Non-Vested Stock being repurchased and all
rights and interest therein or related thereto, and the Company shall have the
right to transfer to its own name the number of shares of Stock being
repurchased by the Company, without further action by Recipient.
(d) Assignment of Repurchase Option. The Repurchase Option
may be assigned by the Company to any third party.
(e) Escrow of Stock. For purposes of facilitating the
enforcement of the provisions of this Section 2, Recipient agrees, immediately
upon receipt of the certificate(s) for the Stock, to deliver such
certificate(s), together with an Assignment Separate from Certificate in the
form attached hereto as Exhibit C, executed in blank by Recipient and
Recipient's spouse (if required for transfer) with respect to each such stock
certificate, to the Secretary or Assistant Secretary of the Company, or their
designee, to hold in escrow for so long as such Stock remains subject to any
Repurchase Option of the Company pursuant to this Section 2, with the authority
to take all such actions and to effectuate all such transfers and/or releases as
may be necessary or appropriate to accomplish the objectives of this Agreement
in accordance with the terms hereof. Stock may be held for an additional period
if subject to a Security Agreement as provided in this Agreement. Recipient
hereby acknowledges that the appointment of the Secretary or Assistant Secretary
of the Company (or their designee) as the escrow holder
2
<PAGE> 11
hereunder with the stated authorities is a material inducement to the Company to
make this Agreement and that such appointment is coupled with an interest and is
accordingly irrevocable. Recipient agrees that such escrow holder shall not be
liable to any party hereto (or to any other party) for any actions or omissions
unless such escrow holder is grossly negligent relative thereto. The escrow
holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine and may resign at any time.
3. First Refusal Right.
(a) Grant of Right. The Company is hereby granted the right
of first refusal (the "First Refusal Right"), exercisable in connection with any
proposed sale or other transfer of the Stock acquired by Recipient hereunder.
For purposes of this Section 3, the term "transfer" shall include any
assignment, pledge, encumbrance or other disposition for value of the Stock
intended to be made by the Owner (defined below), but shall not include any of
the Permitted Transfers under Section 3(f). For purposes of this Section 3, the
term "Owner" shall include the Recipient or any subsequent holder of the Stock
who derives his or her chain of ownership through a transfer permitted by
Section 3(f).
(b) Notice of Intended Disposition. In the event the Owner
desires to accept a bona fide third-party offer for any or all of the Stock (the
shares subject to such offer to be hereinafter called, solely for the purposes
of this Section 3, the "Target Shares"), Owner shall promptly deliver to the
Secretary of the Company written notice (the "Disposition Notice") of the offer
and the basic terms and conditions thereof, including the proposed purchase
price.
(c) Exercise of Right. The Company (or its assignee) shall,
for a period of twenty (20) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon substantially the same terms and conditions specified
therein. Such right shall be exercisable by written notice (the "Exercise
Notice") delivered to Owner prior to the expiration of the twenty (20) day
exercise period. If the Exercise Notice pertains to all the Target Shares
specified in the Disposition Notice, then the Company (or its assignees) shall
effect the repurchase of such Target Shares, including payment of the purchase
price, not more than five (5) business days after delivery of the Exercise
Notice; and at such time Owner shall deliver to the Company the certificates
representing the Target Shares to be repurchased, each certificate to be
properly endorsed for transfer. The Target Shares so purchased shall thereupon
be canceled and cease to be issued and outstanding shares of the Company's
common stock. However, should the purchase price specified in the Disposition
Notice be payable in property other than cash or evidences of indebtedness, the
Company (or its assignees) shall have the right to pay the purchase price in the
form of cash equal in amount to the value of such property. If the Owner and the
Company (or its assignees) cannot agree on such cash value within ten (10) days
after the Company's receipt of the Disposition Notice, the valuation shall be
made by an appraiser of recognized standing selected by the Owner and the
Company (or its assignees) or, if they cannot agree on an appraiser within
twenty (20) days after the Company's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of
3
<PAGE> 12
such value. The closing shall then be held on the later of (i) the fifth
business day following delivery of the Exercise Notice or (ii) the 15th day
after such cash valuation shall have been made.
(d) Non-Exercise of Right. In the event the Exercise Notice
is not given to Owner within twenty (20) days following the date of the
Company's receipt of the Disposition Notice, Owner shall have a period of ninety
(90) days thereafter in which to sell or otherwise dispose of the Target Shares
upon terms and conditions (including the purchase price) no more favorable to
the third party purchaser than those specified in the Disposition Notice. The
third-party purchaser shall acquire the Target Shares subject to all the terms
and provisions of this Agreement. All transferees of the Target Shares shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold the
Target Shares subject to the provisions of this Agreement. In the event Owner
does not sell or otherwise dispose of the Target Shares within the specified
ninety (90) day period, the Company's First Refusal Right shall continue to be
applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with Section 5.
(e) Partial Exercise of Right. In the event the Company (or
its assignees) makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Company delivered within ninety (90) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other distribution of all the Target Shares
to a third-party purchaser in compliance with the requirements
of Section 3(d), as if the Company did not exercise the First
Refusal Right hereunder; or
(ii) sale to the Company (or its assignees) of the
portion of the Target Shares which the Company (or its
assignees) has elected to purchase, such sale to be effected
in substantial conformity with the provisions of Section 3(c).
Failure of Owner to deliver timely notification to the Company under this
Section 3(e) shall be deemed to be an election by Owner to sell the Target
Shares pursuant to alternative (ii) above.
(f) Exempt Transfers. The Company's First Refusal Right
under this Section 3 shall not apply to transfers of the Stock by will or the
laws of descent and distribution; provided, however, that all of the terms of
this Agreement shall remain in effect as to such transferred Stock. In addition,
Recipient may transfer all or a portion of the Stock to (i) a revocable trust
for the sole benefit of Recipient, his or her spouse, or his or her lineal
descendants, or (ii) to his or her spouse, siblings, lineal descendants thereof,
parents, or his or her lineal descendants subject to a nonrevocable voting trust
of a duration of 10 years without the written permission of the Company,
provided said Recipient is trustee and prior written notice (together with a
copy of the trust agreement) is given the Company within thirty (30) days
thereafter. The trustee shall hold such Stock subject to all the provisions
hereof, and shall make
4
<PAGE> 13
no further transfers other than as provided herein. Upon the death, total
disability, or termination of employment of the transferor Recipient, the
successor trustee or any cotrustee (and any subsequent transferee) shall be
required to sell, transfer or present said Stock for purchase as provided
herein, for the price and on the terms hereafter set forth as if such successor
trustee and subsequent transferee were the transferor Recipient. Transferee
shall make no further transfers other than as provided herein, and any attempted
transfer in violation of this Section 3 shall be null and void and shall be
disregarded by the Company. All references herein to Stock shall be deemed to
include Stock owned by any such successor trustee or subsequent transferee,
except that payment for such trustee and transferee Stock shall be made to the
trustee and transferee instead of to the original Recipient or his or her
estate.
4. Vesting. For purposes of this Agreement, the term "vest"
shall mean with respect to any share of the Stock that such share is no longer
Non-Vested Stock subject to repurchase at the original Purchase Price set forth
in Section 2. If Recipient would become vested in any fraction of a share of
Stock on any date, such fractional share shall not vest and shall remain
Non-Vested Stock until the Recipient becomes vested in the entire share.
Commencing on May 9, 1998 and continuing on the monthly anniversary of such
date, 1/36 of the Stock subject to this Agreement shall vest.
5. Lapse. The Company's First Refusal Right under Section 3
above shall lapse and cease to have effect upon the closing of the first
underwritten public offering of Common Stock of the Company that is pursuant to
a registration statement filed with, and declared effective by, the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), covering the offer and sale of any Common Stock to the public
for the Company's account in a firmly underwritten offering for at least
$20,000,000.
6. Corporate Transactions.
(a) Definition. For purposes of this Section 6, a
"Corporate Transaction" shall include any of the following stockholder-approved
transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for (1) a transaction the
principal purpose of which is to change the state of the
Company's incorporation, or (2) a transaction in which the
Company's stockholders immediately prior to such merger or
consolidation hold (by virtue of securities received in
exchange for their shares in the Company) securities of the
surviving entity representing more than fifty percent (50%) of
the total voting power of such surviving entity immediately
after such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company unless the
Company's stockholders immediately prior to such sale,
transfer or other disposition hold (by virtue of securities
received in exchange for their shares in the Company)
securities of the purchaser
5
<PAGE> 14
or other transferee representing more than fifty percent (50%)
of the total voting power of such entity immediately after
such transaction; or
(iii) any merger in which the Company is the surviving
entity but in which the Company's stockholders immediately
prior to such merger do not hold (by virtue of their shares in
the Company) securities of the surviving entity held
immediately prior to such transaction representing more than
fifty percent (50%) of the total voting power of the surviving
entity immediately after such transaction.
(b) Effect. In the event of any Corporate Transaction, (i)
the Company's Repurchase Option under Section 2 shall lapse and (ii) the
Company's First Refusal Right under Section 3 shall lapse.
7. Additional Securities. The term "Stock" also refers to all
securities received in replacement of the Stock, as a stock dividend or as a
result of any stock split, recapitalization, merger, reorganization, exchange or
the like, and all new or additional securities or other properties to which
Recipient is entitled by reason of Recipient's ownership of the Stock
(hereinafter called "Additional Securities"). Recipient shall be entitled to
direct the Company to exercise any warrant or option received as Additional
Securities upon supplying the funds necessary to do so, in which event the
securities so purchased shall constitute Additional Securities, but the
Recipient may not direct Company to sell any such warrant or option. If
Additional Securities consist of a convertible security, Recipient may exercise
any conversion right, and any securities so acquired shall be deemed Additional
Securities. All Stock shall be subject to the restrictions contained in this
Agreement.
8. Investment Representations.
(a) Investment Representations. This Agreement is made in
reliance upon the Recipient's representation to the Company, which by its
acceptance hereof the Recipient hereby confirms, that the shares of Stock to be
received by the Recipient will be acquired for investment for his or her own
account and not with a view to the sale or distribution of any part thereof
within the meaning of the Securities Act.
(b) Availability of Exemptions. The Recipient understands
that the Stock is not registered under the Securities Act on the basis that the
sale provided for in this Agreement and the issuance of securities hereunder is
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and that the Company's reliance on such exemption is predicated on the
Recipient's representations set forth herein.
(c) Restrictions on Transfer. The Recipient understands
that the Stock may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Stock or an
available exemption from registration under the Securities Act, the Stock must
be held indefinitely. In particular, the Recipient is aware that the Stock may
not be sold pursuant to Rule 144 or Rule 701 promulgated under the Securities
Act unless all of the
6
<PAGE> 15
conditions of the applicable Rules are met. Among the conditions for use of Rule
144 is the availability of current information to the public about the Company.
Such information is not now available, and the Company has no present plans to
make such information available. The Recipient represents that, in the absence
of an effective registration statement covering the Stock, it will sell,
transfer, or otherwise dispose of the Stock only in a manner consistent with its
representations set forth herein and then only in accordance with the provisions
of Section 8(d) hereof.
(d) Procedure for Transfer. The Recipient agrees that in no
event will it make a transfer or disposition of any of the Stock (other than
pursuant to an effective registration statement under the Securities Act),
unless and until (i) the Recipient shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the disposition, (ii) such transfer is made in
accordance with the provisions of Section 2 and Section 3 above and (iii) if
requested by the Company, at the expense of the Recipient or transferee, the
Recipient shall have furnished to the Company either (A) an opinion of counsel,
reasonably satisfactory to the Company, to the effect that such transfer may be
made without registration under the Securities Act or (B) a "no action" letter
from the Securities and Exchange Commission to the effect that the transfer of
such securities without registration will not result in a recommendation by the
staff of the Securities and Exchange Commission that action be taken with
respect thereto. The Company will not require such a legal opinion or "no
action" letter in any transaction in compliance with Rule 144.
9. Legends; Stop Transfer.
(a) Required Legends. All certificates for shares of the
Stock shall bear the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. THESE SECURITIES HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY
THE TERMS OF, AND ARE SUBJECT TO A RIGHT OF FIRST REFUSAL
OPTION AND A RIGHT OF REPURCHASE IN FAVOR OF THE COMPANY, AS
PROVIDED IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE
COMPANY AND THE HOLDER HEREOF, OR ITS SUCCESSOR, A COPY OF
WHICH IS AVAILABLE FROM THE COMPANY."
7
<PAGE> 16
(b) Additional Legends. The certificates for shares of the
Stock shall also bear any legend required by any applicable state securities
law.
10. Lock-Up Agreement.
(a) Agreement. Recipient, if requested by the Company and
the lead underwriter of any public offering of the Common Stock or other
securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees
not to sell, contract to sell, grant any option to purchase, transfer the
economic risk of ownership in, make any short sale of, pledge or otherwise
transfer or dispose of any interest in any Common Stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Common Stock (except Common Stock included in such public
offering or acquired on the public market after such offering) during the
180-day period following the effective date of a registration statement of the
Company filed under the Securities Act, or such shorter period of time as the
Lead Underwriter shall specify. Recipient further agrees to sign such documents
as may be requested by the Lead Underwriter to effect the foregoing and agrees
that the Company may impose stop-transfer instructions with respect to such
Common Stock subject until the end of such period. The Company and Recipient
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 10.
(b) Permitted Transfers. Notwithstanding the foregoing,
Section 10(a) shall not prohibit Recipient from transferring any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
the Company's Common Stock to the extent such transfer is not otherwise
prohibited by this Agreement, either during Recipient's lifetime or on death by
will or intestacy to Recipient's immediate family or to a trust the
beneficiaries of which are exclusively Recipient and/or a member or members of
Recipient's immediate family; provided, however, that prior to any such
transfer, each transferee shall execute an agreement pursuant to which each
transferee shall agree to receive and hold such securities subject to the
provisions of Section 10 hereof. For the purposes of this paragraph, the term
"immediate family" shall mean spouse, lineal descendant, father, mother, brother
or sister of the transferor.
(c) No Amendment Without Consent of Underwriter. During the
period from identification as a Lead Underwriter in connection with any public
offering of the Company's Common Stock until the earlier of (i) the expiration
of the lock-up period specified in Section 10(a) in connection with such
offering or (ii) the abandonment of such offering by the Company and the Lead
Underwriter, the provisions of the Section 10 may not be amended or waived
except with the consent of the Lead Underwriter.
11. NO EMPLOYMENT RIGHTS. THIS AGREEMENT SHALL NOT CONFER UPON
RECIPIENT ANY RIGHT WITH RESPECT TO CONTINUATION OF HIS OR HER EMPLOYMENT WITH
THE COMPANY OR ITS AFFILIATES, NOR SHALL IT INTERFERE IN ANY WAY WITH THE RIGHT
OF RECIPIENT OR THE COMPANY, OR ANY OF ITS AFFILIATES, TO TERMINATE RECIPIENT'S
EMPLOYMENT WITH THE
8
<PAGE> 17
COMPANY AT ANY TIME FOR ANY REASON WITH OR WITHOUT CAUSE OR CHANGE THE TERMS OF
EMPLOYMENT OF RECIPIENT.
12. Section 83(b) Election. Recipient hereby represents that he or she
understands (a) the contents and requirements of a timely election made pursuant
to Section 83(b) of the Internal Revenue Code or similar provision of state law
(collectively, an "83(b) Election"), (b) the application of Section 83(b) to the
purchase of Stock by Recipient pursuant to this Agreement, (c) the nature of the
election to be made by Recipient under Section 83(b) and (d) the effect and
requirements of the 83(b) Election under relevant state and local tax laws.
Recipient further represents that he or she intends to file an election pursuant
to Section 83(b), the form of which Election is attached hereto as Exhibit D,
with the Internal Revenue Service within thirty (30) days following purchase of
the Stock hereunder, and a copy of such election with his or her federal tax
return for the calendar year in which the date of this Agreement falls.
Recipient covenants to inform the Company of any change in Recipient's state of
residency. Recipient shall provide the Company with a copy of any timely 83(b)
Election. If Recipient makes a timely 83(b) Election, Recipient shall
immediately pay Company the amount necessary to satisfy any applicable federal,
state, and local income and employment tax withholding requirements. If
Recipient does not make a timely 83(b) Election, Recipient shall, either at the
time that the restrictions lapse under this Agreement or at the time withholding
is otherwise required by any applicable law, pay the Company the amount
necessary to satisfy any applicable federal, state, and local income and
employment tax withholding requirements.
13. Withholding. Recipient agrees to withholding of shares from
exercise for satisfaction of any applicable federal, state or local income tax
or employment tax withholding requirements.
14. Distributions. The Company shall disburse to Recipient all
dividends, interest and other distributions paid or made in cash or property
(other than Additional Securities) with respect to Stock and Additional
Securities, less any applicable federal or state withholding taxes.
15. Successors. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
16. Notice. Any notice or other paper required to be given or sent
pursuant to the terms of this Agreement shall be sufficiently given or served
hereunder to any party when transmitted by express or certified mail, postage
prepaid, addressed to the party to be served as follows:
Company: SkillSoft Corporation
20 Industrial Park Drive
Nashua, NH 03062
Attn: Secretary
9
<PAGE> 18
Recipient: At Recipient's address as it appears under Recipient's
signature to this Agreement, or to such other address as
Recipient may specify in writing to the Company
Any party may designate another address for receipt of notices so long as notice
is given in accordance with this Section.
17. Spousal Consent. Recipient shall cause his or her spouse to execute
the Consent of Spouse attached hereto as Exhibit E concurrently with the
execution of this Agreement or, if later, at the time Recipient becomes married.
18. Delaware Law. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Restricted Stock Purchase Agreement as of the date first above written.
SKILLSOFT CORPORATION
a Delaware corporation
By ________________________________
Its _______________________________
Recipient:
____________________________________
Jerald A. Nine
Address:
127 Wallace Road
Bedford, NH 03110
10
<PAGE> 19
EXHIBIT A
SECURED PROMISSORY NOTE
$61,250 _________________, 1998
FOR VALUE RECEIVED, the undersigned Jerald A. Nine, an
individual residing at _______________________________________ ("Maker"), hereby
promises to pay to SkillSoft Corporation, a Delaware corporation ("Payee"), on
the earlier of (i) ________, 2003 or (ii) the date Maker ceases to be an
employee of Payee, for any reason, the principal sum of Sixty-One Thousand Two
Hundred Fifty Dollars ($61,250), in lawful money of the United States of America
and in immediately available funds, plus simple interest from the date hereof at
the rate of _____ percent (__%) per annum, payable in full on the date such
principal amount is due, provided however, that the last said installment shall
be in an amount necessary to repay in full the unpaid principal and interest
hereof.
Interest shall be computed on the basis of a year of 365 days
for the actual number of days elapsed. Should interest not be paid when due
hereunder, it shall be added to the principal and thereafter bear like interest
as the principal, but such unpaid interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal at the maximum rate
permitted by law.
This is the Promissory Note referred to in the Security
Agreement of even date herewith between Maker and Payee, and Payee is entitled
to all the benefits provided therein.
(i) Prepayments. Maker reserves the right to prepay the
outstanding principal amount of this Note in full or in part at any time during
the term of this Note without notice and without premium or penalty.
(ii) Events of Default and Remedies. Any one of the following
occurrences shall constitute an "Event of Default" under this Note:
(a) Maker fails to make payment of full principal amount
of this Note as and when the same becomes due and payable in accordance with the
terms hereof.
(b) Maker becomes insolvent or bankrupt, commits any act
of bankruptcy, generally fails to pay its debts as they become due, becomes the
subject of any proceedings or action of any regulatory agency or any court
relating to insolvency, or makes an assignment for the benefit of its creditors,
or enters into any agreement for the composition, extension, or readjustment of
all or substantially all of his or her obligations.
(c) Maker ceases to be an employee of Payee for any
reason.
Upon the occurrence of any Event of Default hereunder,
the entire unpaid principal balance of this Note (including accrued interest)
shall, at the option of the Payee and without notice or demand of any kind to
Maker or any other person, immediately become due and payable, and Payee shall
have and may exercise any and all rights and remedies available to it at law or
in equity.
<PAGE> 20
(iii) Attorneys' Fees and Costs. Maker promises to pay on
demand all reasonable out-of-pocket costs of and expenses of Payee in connection
with the collection of amounts due hereunder, including, without limitation,
attorneys' fees incurred in connection therewith, whether or not any lawsuit is
ever filed with respect thereto.
(iv) Miscellaneous.
(a) Waiver. Maker waives diligence, presentment,
protest and demand and also notice of protest, demand, dishonor and nonpayment
of this Note. No extension of time for the payment of this Note shall affect the
original liability under this Note of Maker. The pleading of any statute of
limitations as a defense to any demand against Maker is expressly waived by
Maker to the full extent permitted by law.
(b) Setoff. The obligation to pay Payee shall be
absolute and unconditional and the rights of Payee shall not be subject to any
defense, setoff, counterclaim or recoupment or by reason of any indebtedness or
liability at any time owing by Payee to Maker.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Note as of the date first above written.
MAKER
___________________________
Jerald A. Nine
2
<PAGE> 21
EXHIBIT B
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of this
____ day of ________, 1998, by and between SkillSoft Corporation, a Delaware
corporation ("Secured Party"), and Jerald A. Nine, an individual residing at
_______________________________________ ("Debtor").
In consideration of the mutual covenants contained herein and
for other good and valuable consideration, the adequacy and receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. Definitions. The following terms have the following
meanings:
(a) The term "Collateral" shall mean (i) the tangible
assets owned by Debtor as of the date hereof and described in Exhibit A attached
hereto and (ii) all Proceeds of the foregoing Collateral. For purposes of this
Security Agreement, the term "Proceeds" includes whatever is receivable or
received when Collateral or proceeds thereof is sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes, without limitation, all rights to payment, including return premiums,
with respect to any insurance relating thereto.
(b) The term "Obligations" shall mean all of the unpaid
principal sum of that certain Secured Promissory Note in the original principal
amount of $______ of even date herewith (the "Note") evidencing the indebtedness
of Debtor to Secured Party.
(c) The term "UCC" shall mean the Uniform Commercial Code
as the same may, from time to time, be in effect in the State of New Hampshire.
(d) Capitalized terms used herein shall have the meaning
set forth in the UCC unless otherwise set forth herein.
(e) The term "Event of Default" shall have the meaning set
forth in the Note.
2. Grant of Security Interest. As collateral security for
prompt and complete payment and performance under the Obligations, Debtor hereby
assigns, conveys, grants, pledges and transfers to and creates in favor of
Secured Party a security interest in the Collateral, including all Proceeds of
the foregoing and all accessions to, substitutions and replacements for the
foregoing. Debtor shall, upon execution of this Security Agreement, and of the
Note as Payee (as such term is defined in the Note), deliver all certificates
representing the Collateral together with a stock power executed in blank by
Debtor and Debtor's spouse with respect to such stock certificates to the
Secretary of Secured Party to be held in escrow until full satisfaction of
Debtor's obligations hereunder and under the Note with the authority to take all
such actions and to effectuate all such transfers and/or releases as may be
necessary or appropriate to accomplish the objectives of this Security Agreement
and the Note. In the event that the Proceeds from the disposition
<PAGE> 22
of the Collateral are insufficient to fully satisfy the amounts due and owing
under the Note, Debtor shall, subject to the limitations set forth in the UCC,
be liable for any deficiency.
3. Representations, Warranties and Covenants. Debtor
represents, warrants and covenants that:
(a) Title. Apart from the security interest in the
Collateral granted to Secured Party hereunder, Debtor has good and valid title
to the Collateral, free and clear of any and all liens, charges, claims,
security interests or encumbrances of any kind whatsoever.
(b) Transfer of Collateral. Debtor shall not sell, assign,
transfer, encumber or otherwise dispose of any of the Collateral or any interest
therein without the prior written consent of Secured Party. If any such
encumbrance is imposed, Debtor shall give Secured Party immediate written
notice.
(c) Perfection. Debtor shall, upon demand, do all such acts
as Secured Party may reasonably request to establish and maintain a perfected
security interest in the Collateral, including, without limitation, executing a
financing statement in the form prescribed by the New Hampshire Secretary of
State.
4. Remedies. Upon the occurrence of any Event of Default
hereunder, the entire unpaid principal balance of the Note shall, at the option
of the Payee and without notice or demand of any kind to Debtor or any other
person, immediately become due and payable, and Secured Party may proceed to
exercise any and all of the rights and remedies of a secured party under the UCC
and any other remedies available at law or in equity, with respect to the
Collateral.
IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be executed as of the date first above written.
SECURED PARTY
SKILLSOFT CORPORATION
a Delaware corporation
By:_______________________
Its:______________________
DEBTOR
___________________________
Jerald A. Nine
2
<PAGE> 23
EXHIBIT A
DESCRIPTION OF COLLATERAL
350,000 shares of Common Stock of SkillSoft Corporation
<PAGE> 24
EXHIBIT C
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, Jerald A. Nine hereby sells, assigns and
transfers unto SkillSoft Corporation, a Delaware corporation (the "Company"),
350,000 (Three Hundred Fifty Thousand) shares of the Common Stock of the
Company, standing in his or her name on the books of SkillSoft Corporation,
represented by Certificate No. __ herewith, and does hereby irrevocably
constitute and appoint ________________ attorney to transfer the said stock in
the books of SkillSoft Corporation with full power of substitution.
DATED: ________________
___________________________________
(Signature)
___________________________________
(Printed Name)
<PAGE> 25
EXHIBIT D
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the
Internal Revenue Code, to include in gross income for 1998 the amount of any
compensation taxable in connection with the taxpayer's receipt of the property
described below;
1. The name, address, taxpayer identification number and
taxable year of the undersigned are:
TAXPAYER'S NAME: Jerald A. Nine
SPOUSE'S NAME: Kimberly M. Nine
TAXPAYER'S SOCIAL SECURITY NO.: ###-##-####
SPOUSE'S SOCIAL SECURITY NO.: ###-##-####
TAXABLE YEAR: Calendar Year 1998
ADDRESS: 127 Wallace Road
Bedford, NH 03110
2. The property which is the subject of this election is:
700,000 shares of Common Stock of SkillSoft Corporation, a Delaware corporation.
3. The property was transferred to the undersigned on June 19,
1998.
4. The property is subject to the following restriction: Right
of repurchase by SkillSoft Corporation.
5. The fair market value of the property at the time of
transfer (determined without regard to any restriction other than a restriction
which by its terms will never lapse) is:
$0.175 per share x 700,000 shares = $122,500.
6. The undersigned paid $0.175 per share x 700,000 shares for
the property transferred or a total of $122,500.
The undersigned has submitted a copy of this statement to the
person for whom the services were performed in connection with the undersigned's
receipt of the above-described property. The undersigned taxpayer is the person
performing the services in connection with the transfer of said property.
<PAGE> 26
The undersigned will file this election with the Internal
Revenue Service office in which he or she files his or her annual income tax
return not later than 30 days after the date of transfer of the property. A copy
of the election also will be furnished to the person for whom the services were
performed. Additionally, the undersigned will include a copy of the election
with his or her income tax return for the taxable year in which property is
transferred. The undersigned understands that this election will also be
effective as an election under New Hampshire law.
Dated: ___________________________ ___________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________________ ___________________________________________
Spouse of Taxpayer
2
<PAGE> 27
EXHIBIT E
CONSENT OF SPOUSE
I, _____________________, spouse of Jerald A. Nine, have read
and approved the foregoing Agreement. In consideration of the right of my spouse
to purchase shares of SkillSoft Corporation, as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights of the Agreement insofar as I may have any rights under such
community property laws of the State of New Hampshire or similar laws relating
to marital property in effect in the state of our residence as of the date of
the signing of the foregoing Agreement.
Dated: _________________________________________ By:________________________
[Signature]
___________________________
Jerald A. Nine
<PAGE> 1
Exhibit 10.8
SKILLSOFT CORPORATION
FIRST AMENDED AND RESTATED
REGISTRATION AND INVESTOR RIGHTS AGREEMENT
This First Amended and Restated Registration and Investor Rights
Agreement (the "Agreement") is made as of August 5, 1999 by and among SkillSoft
Corporation, a Delaware corporation (the "Company"), Warburg, Pincus Ventures,
L.P., a Delaware limited partnership ("Warburg"), SI Venture Fund, L.L.C., a
Delaware limited liability company ("Gartner") and the additional investors
listed on the signature pages hereto (the "Additional Investors") (Warburg,
Gartner and the Additional Investors are sometimes hereinafter referred to
together as "Investors").
RECITALS
A. The Investors and the Company are parties to the Second Amended and
Restated Preferred Stock Purchase Agreement dated as of August 5, 1999 (the
"Purchase Agreement").
B. The Company desires to grant, and the Investors desire to be
granted, the rights created herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, all parties hereto agree as follows:
1. Certain Definitions. All capitalized terms used and not otherwise
defined herein shall have the meanings given them in the Purchase Agreement. As
used in this Agreement, the following terms shall have the following respective
meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Conversion Stock" means the Common Stock issued or issuable
pursuant to conversion of the Preferred Stock.
"Holder" shall mean (i) the Investors and (ii) any person holding
Registrable Securities to whom the rights under this Agreement have been
transferred in accordance with Section 5.9 hereof.
"Initiating Holders" shall mean, prior to the Company's Initial
Public Offering, any Holders who in the aggregate hold not less than 50% of the
Registrable Securities, and after the Company's Initial Public Offering, any
Holders who in the aggregate hold Registrable Securities with market value of at
least $10.0 million.
"Initial Public Offering" shall mean the Company's sale of its
Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement filed pursuant to the
<PAGE> 2
Securities Act of 1933, as amended, the public offering price of which is not
less than $6.30 per share (adjusted to reflect subsequent stock dividends, stock
splits, combinations or other recapitalizations) and the proceeds thereof (net
of underwriting commissions and offering expenses) equal or exceed $20,000,000.
"Preferred Stock" shall mean the Series A, Series B and Series C
Preferred Stock of the Company issued or issuable to the Investors pursuant to
the Purchase Agreement.
"Registrable Securities" means the Conversion Stock and any Common
Stock of the Company issued or issuable in respect of the Conversion Stock upon
any stock split, dividend, recapitalization, or similar event, or any Common
Stock otherwise issuable with respect to the Conversion Stock; provided,
however, that shares of Conversion Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (a) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (b) sold in a single transaction exempt from
the registration and prospectus delivery requirements of the Securities Act, so
that all transfer restrictions and restrictive legends with respect thereto are
removed prior to any such sale.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 5.1, 5.2 and
5.3 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company) and the fees and disbursements of one counsel for all Holders.
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth under "Registration Expenses," all fees and
disbursements of counsel for any Holder.
2. Restrictions on Transferability. The Preferred Stock, the Conversion
Stock and any other securities issued in respect of the Preferred Stock or the
Conversion Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event shall not be sold,
2
<PAGE> 3
assigned, transferred or pledged except upon the conditions specified in this
Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. The Investor will cause any proposed
purchaser, assignee, transferee, or pledgee of any such shares held by the
Investors to agree to take and hold such securities subject to the provisions
and upon the conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing (i) the Preferred
Stock, (ii) the Conversion Stock, and (iii) any other securities issued in
respect of the Preferred Stock or the Conversion Stock upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 4 below) be stamped or
otherwise imprinted with legends in substantially the following form (in
addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO,
OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
COPIES OF THE AGREEMENT RESTRICTING THE TRANSFER OF
THESE SHARES MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE CORPORATION.
The Investors and/or Holder consents to the Company making a notation
on its records and giving instructions to any transfer agent of the Preferred
Stock or the Common Stock in order to implement the restrictions on transfer
established in this Agreement.
4. Notice of Proposed Transfer. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership, (ii) in transactions
involving the distribution without consideration of Restricted Securities by the
Investors to any of their partners, or retired partners, or to the estate of any
of their partners or retired partners, (iii) in transactions involving the
transfer without consideration of Restricted Securities by the Investors during
their lifetime by way of gift or on death by will or intestacy, (iv) in
transactions involving the transfer or distribution of Restricted Securities by
a corporation to any subsidiary, parent or affiliated corporation of such
corporation, or (v) in transactions involving the distribution without
3
<PAGE> 4
consideration of Restricted Securities by Investor to any of its stockholders,
or (vi) in transactions in compliance with Rule 144), unless there is in effect
a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, at such holder's expense by either (i) an unqualified written
opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear, except if such transfer is made pursuant to Rule 144,
the appropriate restrictive legend set forth in Section 3 above, except that
such certificate shall not bear such restrictive legend if, in the opinion of
counsel for such holder and the Company, such legend is not required in order to
establish compliance with any provision of the Securities Act.
5. Registration.
5.1 Demand Registration.
(a) Demand for Registration. In case the Company
shall receive from Initiating Holders a written request that the Company effect
any registration, qualification or compliance with respect to not less than
thirty (30) percent of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best
efforts to effect such registration, qualification or compliance (including,
without limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within 20 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 5.1:
(A) In any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act;
4
<PAGE> 5
(B) Prior to the earlier of December 31,
1999 or six months after the effective date of the Company's Initial Public
Offering;
(C) If the Company, within ten (10) days of
the receipt of the request of the Initiating Holders, gives notice of its bona
fide intention to effect the filing of a registration statement with the
Commission within ninety (90) days of receipt of such request;
(D) During the period starting with the date
of filing of, and ending on the date 180 days immediately following the
effective date of the registration statement for the Company's Initial Public
Offering, and during the period starting with the of filing of, and ending on
the date 90 days immediately following the effective date of any other
registration statement pertaining to securities of the Company, provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective;
(E) After the Company has effected three
registrations pursuant to this Section 5.1(a);
(F) Within twelve (12) months after the
Company has effected such a registration pursuant to this Section 5.1(a); or
(G) If the Company shall furnish to such
Initiating Holders a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed at the date filing would be required, in which case the Company's
obligation to use its best efforts to register, qualify or comply under this
Section 5.1 shall be deferred for a period not to exceed 60 days from the date
of receipt of written request from the Initiating Holders, provided that the
Company may not exercise this deferral right more than twice during any twelve
(12) month period.
Subject to the foregoing clauses (A) through (G), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) Underwriting. Any registration pursuant to Section 5.1 shall be
firmly underwritten by an underwriter of national recognition. In the event that
a registration pursuant to Section 5.1 is for a public offering involving an
underwriting, the Company shall so advise the Holders as part of the notice
given pursuant to Section 5.1(a)(i), and the right of any Holder to registration
pursuant to Section 5.1 shall be conditioned upon such Holder's participation in
such underwriting arrangements, and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent requested shall be limited to the
extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority in interest of the Initiating Holders, but
subject to the Company's reasonable approval. Notwithstanding any other
provision of this Section 5.1, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the
5
<PAGE> 6
Company shall so advise all holders of Registrable Securities, and the number of
shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to (i) 180 days after the effective
date of such registration if the registration was for the Company's Initial
Public Offering, (ii) 90 days after the effective date of all other
registrations, or (iii) such other shorter period of time as the underwriters
may require. If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account (or for the account of other stockholders) in such registration if the
underwriter so agrees and if the number of Registrable Securities that would
otherwise have been included in such registration and underwriting will not
thereby be limited.
5.2 Company Registration.
(a) Notice of Registration. If at any time or from time to
time the Company shall determine to register any of its equity securities,
either for its own account or for the account of a security holder or holders,
other than (A) a registration relating solely to employee benefit plans, or (B)
a registration relating solely to a Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from the Company by any Holder.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting, and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein.
All Holders proposing to distribute their securities through
such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other
6
<PAGE> 7
provision of this Section 5.2, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of the Registrable
Securities to be included in such registration (i) in the case of the Company's
initial public offering, to zero, and (ii) in the case of any other offering, to
an amount no less than 25% of all shares to be included in such offering;
provided however, that (x) any such limitation or "cutback" shall be first
applied to all shares proposed to be sold in such offering other than for the
account of the Company which are not Registrable Securities. The Company shall
so advise all Holders and other holders distributing their securities through
such underwriting, and the number of shares of Registrable Securities or other
securities that may be included in the registration and underwriting shall be
first allocated among all the Holders in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by such Holder at the
time of filing the Registration Statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the number
of shares allocated to any Holder or holder to the nearest 100 shares.
If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 180 days after the effective date
of the registration statement thereto, or such other shorter period of time as
the underwriters may require.
(c) Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 5.2 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
5.3 Registration on Form S-3.
(a) If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of the shares of Registrable Securities, the reasonably
anticipated aggregate price to the public of which would equal or exceed Seven
Hundred Thousand dollars ($700,000), and the Company is a registrant entitled to
use Form S-3 to register the Registrable Securities for such an offering, the
Company shall use its best efforts to cause such Registrable Securities to be
registered for the offering on such form and to cause such Registrable
Securities to be qualified in such jurisdictions as such Holder or Holders may
reasonably request, provided, however, the Company shall not be required to
undertake such a registration on Form S-3 more than twice in any one-year
period. The Company shall inform any other Holders of the proposed registration
and offer them the opportunity to participate. In the event the registration is
proposed to be part of a firm commitment underwritten public offering, the
substantive provisions of Section 5.1(b) shall be applicable to each such
registration initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 5.3:
7
<PAGE> 8
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) if the Company, within ten (10) days of the receipt
of the request of the initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the Commission
within ninety (90) days of receipt of such request;
(iii) during the period starting with the date of filing
of, and ending on the date 90 days immediately following the effective date of,
any registration statement pertaining to securities of the Company, provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective;
(iv) if the Company shall furnish to such Holder or
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its stockholders for registration statements to be filed at
the date filing would be required, in which case the Company's obligation to use
its best efforts to file a registration statement shall be deferred for a period
not to exceed 60 days from the receipt of the request to file such registration
by such Holder or Holders, provided that the Company may not exercise this
deferral right more than twice during any twelve (12) month period; or
5.4 Expenses of Registration. All Registration Expenses
incurred in connection with all registrations pursuant to Sections 5.1, 5.2 and
5.3 shall be borne by the Company. Notwithstanding the foregoing, the Company
shall not be required to effect or to pay any Registration Expenses of any
registration begun pursuant to Sections 5.1 or 5.3, the request of which has
been subsequently withdrawn by Holders of a number of shares of Registrable
Securities such that there are no Holders of Registrable Securities intending to
participate in the registration sufficient to request such a registration, in
which case such expenses shall be borne by the Holders of securities (including
Registrable Securities) requesting or causing such withdrawal; provided further,
however, that if at the time of such withdrawal, the Holders have learned of a
material adverse change in the condition, business or prospects of the Company
from that known to the Holders at the time of their request, then the Holders
shall not be required to pay any of such Registration Expenses and shall retain
their rights pursuant to Sections 5.1, 5.2, 5.3 and 5.4.
5.5 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the registration
statement has been completed, whichever first occurs; and
8
<PAGE> 9
(b) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such Holders and
underwriters may reasonably request in order to facilitate the public offering
of such securities.
(c) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(d) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(e) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
5.6 Indemnification.
(a) The Company will indemnify each Holder of Registrable
Securities included in a registration pursuant to this Agreement, each of its
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act of 1933, the Securities Exchange Act of 1934, state securities
law or any rule or regulation promulgated under the such laws applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers, directors
and partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred, as such expenses are incurred, in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in
9
<PAGE> 10
conformity with written information furnished to the Company by an instrument
duly executed by any Holder, controlling person or underwriter and stated to be
specifically for use therein; provided, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement, alleged untrue statement, omission or alleged omission made in
a preliminary prospectus, such indemnity agreement shall not inure to the
benefit of any underwriter, or any Holder, if there is no underwriter, if a copy
of the final prospectus filed with the Commission pursuant to its Rule 424(b)
was not furnished to the person asserting the loss, liability, claim or damage
at or prior to the time such action is required by the Securities Act, and if
such final prospectus cured the untrue statement, alleged untrue statement,
omission or alleged omission giving rise to the loss, liability, claim or
damage.
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such registration statement, each person who controls the
Company or such underwriter within the meaning of Section 15 of the Securities
Act, and each other such Holder, each of its officers, directors and partners
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Holders, such directors, officers, partners,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred, as such expenses are incurred, in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by such Holder and stated to be
specifically for use therein. Notwithstanding the foregoing, the liability of
each Holder under this Section 5.6(b) shall be limited in an amount equal to the
net proceeds of the shares sold by such Holder. In no event will any Holder be
required to enter into any agreement or undertaking for the benefit of the
Company in connection with any registration under this Section 5 providing for
any indemnification or contribution obligations on the part of such Holder
greater than such Holder's obligations under this Section 5.6 (b).
(c) Each party entitled to indemnification under this
Section 5.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall be unreasonably
be withheld), and the Indemnified party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action,
and provided further that the Indemnifying
10
<PAGE> 11
Party shall not assume the defense for matters as to which representation of
both the Indemnifying Party and the Indemnified Party by the same counsel would
be inappropriate due to actual or potential differing interests between them,
but shall instead in such event pay the fees and costs of separate counsel for
the Indemnified Party. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, 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 such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) Contribution. If the indemnification provided for in
this Section 5.6 shall for any reason be held by a court to be unavailable to an
indemnified party under paragraph (a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under paragraph (a) or (b) hereof, the indemnified
party and the indemnifying party under paragraph (a) or (b) hereof shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating the
same), (i) in such proportion as is appropriate to reflect the relative fault of
the Company and the prospective Holders of Registrable Securities covered by the
registration statement which resulted in such loss, claim, damage or liability,
or action in respect thereof, with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company and such Holders from the offering of the securities covered by such
registration statement. No party hereto guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any party hereto who was not guilty of such fraudulent
misrepresentation. Such Holders' obligation to contribute as provided in this
paragraph (d) are several in proportion to the relative value of their
respective Registrable Securities covered by such registration statement and not
joint. In addition, no party shall be obligated to contribute hereunder any
amounts in payment for any settlement of any action or claim effected without
such party's consent, which consent shall not be unreasonably withheld.
(e) Timing of Payments. The indemnification and
contribution required by this Section 5.6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
5.7 Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the Company
such information regarding such Holder or Holders, the Registrable Securities
held by them and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
5.8 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use reasonable efforts to:
11
<PAGE> 12
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Securities Exchange Act (at any time after it has become subject to such
reporting requirements); and
(c) So long as a Holder owns any Restricted Securities to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public)
and of the Securities Act and the Securities Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as the Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing the Holder to sell
any such securities without registration.
5.9 Transfer of Registration Rights. The rights to cause the
Company to register securities granted the Investors under Sections 5.1, 5.2 and
5.3 may be assigned to a transferee or assignee in connection with any transfer
or assignment of Registrable Securities by the Investors provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such assignee or transferee acquires at least 100,000 shares of
Registrable Securities held by the assignor or transferor (appropriately
adjusted for recapitalizations, stock splits and the like) (iii) written notice
is promptly given to the Company and (iv) such transferee agrees to be bound by
the provisions of this Agreement. Notwithstanding the foregoing, the rights to
cause the Company to register securities may be assigned to (A) any affiliated
partnership or constituent partner or retired partner of an Investor which is a
partnership, or (B) a family member or trust for the benefit of an Investor who
is an individual, provided written notice thereof is promptly given to the
Company and the transferee agrees to be bound by the provisions of this
Agreement.
5.10 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of Holders holding more than fifty percent (50%) of the
Registrable Securities, enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder to (i) require the Company to effect a registration, prior to
the date set forth in Section 5.1 (a) (ii) (B) or (ii) include any securities in
any registration filed under Section 5.1, 5.2 or 5.3 hereof, unless, under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not diminish the amount of Registrable Securities which are
included in such registration and includes the equivalent of Section 11 as a
term.
5.11 Termination of Registration Rights. The rights granted
pursuant to Sections 5.1, 5.2 and 5.3 of this Agreement shall terminate as to
any Holder at such time as a
12
<PAGE> 13
public market shall have existed for the Company's securities for a period of at
least 180 days following the Company's Initial Public Offering and (i) such
Holder beneficially owns less than 1% of the outstanding Common Stock of the
Company and can sell all of his Registrable Securities pursuant to Rule 144(k)
promulgated under the Securities Act or (ii) such Holder can sell all of his
Registrable Securities pursuant to Rule 144 promulgated under the Securities Act
in any single ninety (90) day period.
6. Financial Information.
6.1 The Company will provide the following reports to each
holder of Preferred Stock and/or Conversion Stock:
(a) As soon as practicable after the end of each fiscal
year, and in any event within 60 days thereafter, consolidated balance sheets of
the Company, as of the end of such fiscal year, and consolidated statements of
operations and of cash flows and stockholders' equity of the Company, for such
year, prepared in accordance with generally accepted accounting principles, all
in reasonable detail and audited by independent public accountants of national
standing selected by the Company.
6.2 The Company will provide the following reports to each
holder of at least One Hundred Thousand (100,000) shares of Preferred Stock
and/or Conversion Stock:
(a) At least thirty days prior to the beginning of each
fiscal year, a budget adopted by the Company's Board of Directors for the fiscal
year, and, as soon as prepared, any other budgets or revised budgets prepared by
the Company;
(b) Within 30 days after the end of each monthly
accounting period, an unaudited consolidated condensed balance sheet of the
Company, as of the end of each such monthly period, and unaudited consolidated
condensed statement of operations of the Company for such period and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles (other than for accompanying notes), subject to changes
resulting from year-end audit adjustment, and a comparison to the budget
approved by the Board of such statements.
7. Visitation and Inspection.
7.1 The Company will afford each holder of Preferred Stock
and/or Conversion Stock reasonable access during normal business hours to the
Company's accounting books and records and minutes of proceedings of the
stockholders and the Board and committees of the Board, and all information
distributed to the Board, for a purpose reasonably related to such holder's
interests as a stockholder of the Company.
7.2 The Company will afford to each holder of at least One
Hundred Thousand (100,000) shares of Preferred Stock and/or Conversion Stock the
right, upon twenty business (20) days, advance notice, to meet periodically with
the Company's principal executive officer or chief financial officer during
normal business hours to discuss and make recommendations regarding the conduct
of the Company's business and affairs.
13
<PAGE> 14
8. Confidentiality. Notwithstanding the foregoing, the Company is
not required to disclose trade secrets or confidential information pursuant to
Section 6 or Section 7 if not covered by an appropriate non-disclosure
agreement.
9. Pre-emptive Right.
9.1 The Company hereby grants to each holder of at least
100,000 shares of Preferred Stock and/or Conversion Stock (appropriately
adjusted for recapitalizations, stock splits and the like) (each such holder
referred to herein as a "Qualified Investor"), the right of first refusal to
purchase its Pro Rata Share of New Securities (as defined in this Section 9)
which the Company may, from time to time, propose to sell and issue. A "Pro Rata
Share," for purposes of this right of first refusal, is the ratio that (i) the
sum of the number of shares of Common Stock then held by each Qualified Investor
and the number of shares of Common Stock issuable upon conversion of the
Preferred Stock then held by such Qualified Investor bears to (ii) the sum of
the total number of shares of Common Stock then outstanding and the number of
shares of Common Stock issuable upon conversion of all then outstanding shares
convertible into Common Stock.
9.2 Except as set forth below, "New Securities" shall mean any
shares of capital stock of the Company, including Common Stock and any series of
preferred stock, whether now authorized or not, and rights, options or warrants
to purchase said shares of Common Stock or preferred stock, and securities of
any type whatsoever that are, or may become, convertible into or exchangeable
for said shares of Common Stock or preferred stock. Notwithstanding the
foregoing, "New Securities" does not include (i) the Conversion Stock, (ii)
Common Stock offered to the public generally pursuant to a registration
statement under the Securities Act in connection with the Company's Initial
Public Offering, (iii) up to 3,990,000 shares (net of any repurchases or
cancellations and excluding the shares underlying the convertible securities
referenced in clause (iv) hereof) of the Company's Common Stock or any other
securities excluded from the definition of Additional Shares of Common Stock set
forth in the Article III(A)(3) of the Company's Amended and Restated Certificate
of Incorporation to be filed concurrent with the closing of the Purchase
Agreement (or such greater amount as may be approved by a majority of the
holders of the Preferred Stock) issued on or after inception of the Company to
employees, officers and directors of, and consultants to, the Company, pursuant
to arrangements approved by the Board of Directors of the Company, (iv) stock
issued pursuant to any rights, agreements or convertible securities, including
without limitation options and warrants, provided that (a) any such convertible
securities as were issued prior to the date hereof and disclosed to the
Investors in the Purchase Agreement or (b) the rights of first refusal
established by this Section 9 applied with respect to the initial sale or grant
by the Company of such rights, agreements or convertible securities or (v) stock
issued in connection with any stock split, stock dividend or recapitalization by
the Company.
9.3 In the event the Company proposes to undertake an issuance
of New Securities, it shall give each Qualified Investor written notice of its
intention, describing the amount and type of New Securities, and the price and
terms upon which the Company proposes to issue the same. Each Qualified Investor
shall have thirty (30) calendar days from the date of receipt of any such notice
to agree to purchase up to its respective Pro Rata Share of such New Securities
for the price and upon the terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased. If any Qualified Investor fails to agree to purchase its full Pro
Rata Share within such thirty (30) calendar day
14
<PAGE> 15
period, the Company will give the Qualified Investor who did so agree (the
"Electing Qualified Investor") notice of the number of New Securities which were
not subscribed for. Such notice may be by telephone if followed by written
confirmation within two days. The Electing Qualified Investor shall have ten
(10) business days from the date of such second notice to agree to purchase
their Pro Rata Share of all or any part of the New Securities not purchased by
such other Qualified Investor. For the purpose of this second election under
this Section 9(c), shares held by Qualified Investor other than Electing
Qualified Investor shall be excluded from clause (ii) for the definition of "Pro
Rata Share" contained in Section 9(a).
9.4 In the event all of the New Securities are not elected to
be purchased by Qualified Investor within ten (10) business days after the
second notice pursuant to Section 9(c) above, the Company shall have ninety (90)
days thereafter to sell the New Securities not elected to be purchased by
Qualified Investor at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company's notice. In the
event the Company has not sold the New Securities within said ninety (90) day
period, the Company shall not thereafter issue or sell any New Securities
without first offering such securities in the manner provided above.
9.5 The right of first refusal hereunder is not assignable
except by each of such Qualified Investor to any party who acquires at least
100,000 shares of the Preferred Stock and/or Conversion Stock (appropriately
adjusted for recapitalizations, stock splits and the like).
10. Termination of Covenants. The covenants set forth in Sections 6, 7,
9 and 12 shall terminate and be of no further force or effect upon the
consummation of a bona fide, firm commitment underwriting pursuant to a
registration statement filed pursuant to the Securities Act, the public offering
price of which is not less than $6.30 per share (adjusted to reflect subsequent
stock dividends, stock splits, combinations or other recapitalizations) and the
proceeds thereof (net of underwriting commissions and offering expenses) equal
or exceed $20,000,000 or at such time as the Company is required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act, whichever shall
occur first.
11. Standoff Agreement. In connection with the initial public offering
of the Company's securities, each Investor and each Holder agrees, upon request
of the Company or the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of or hedge its ownership risks
of any securities of the Company (other than those included in the offering)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as may be requested by the
underwriters, provided that all officers and directors of the Company who own
stock of or hold options to purchase stock of the Company also agree to such
restrictions. Each Investor and each Holder agrees that the Company may instruct
its transfer agent to place stop-transfer notations in its records to enforce
the provisions of this Section 11. Each Investor and each Holder agrees to
execute a reasonable and customary agreement reflecting the foregoing as may be
requested by the managing underwriters at the time of the Company's initial
underwritten public offering.
15
<PAGE> 16
12. Additional Covenants of the Company.
(a) The Company covenants that it shall not without the
approval of Investors holding in aggregate sixty percent (60%) of the Preferred
Stock: (a) sell or issue any equity or debt securities of the Company, except
for stock options approved by the Board of Directors of the Company and shares
underlying such options and equity securities in connection with equipment
leasing transactions approved by the Board of Directors; (b) sell, lease, or
dispose of any assets of the Company with a value in excess of the greater of
$500,000 or 20% of the assets of the Company, except in the ordinary course of
business; (c) incur any indebtedness or make any capital expenditures in excess
of the greater of $500,000 or 20% of the assets of the Company; (d) engage in
any business other than the business described in the business plan presented to
the Investors prior to the date hereof; (e) increase the compensation of the
officers of the Company; (f) alter materially the Company's accounting methods
or policies or appoint new auditors for the Company; (g) make any acquisitions
or enter into any mergers; or (h) amend the Company's Certificate of
Incorporation or Bylaws. The rights set forth in this Section 12 shall not be
transferable except to an affiliate (as defined in Rule 144(a) of the Securities
Act of 1933, as amended) of Warburg.
(b) The Company also covenants that it shall undertake in good
faith to cause all holders of the Company's Preferred Stock and Common Stock, in
connection with the purchase of their stock, to be subject to a restriction
stating that in connection with an underwritten public offering of the Company's
securities, each holder will not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of or hedge its ownership risks
of any securities of the Company (other than those included in the offering)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such offering as may be requested by the
underwriters.
13. Determination of Share Amounts and Percentages. For the
purposes of determining the minimum holdings set forth in this Agreement,
including without limitation the minimum holdings pursuant to Sections 5.9,
6(a), 9(a) and 9(e), the following rules shall govern:
13.1 All shares held by entities affiliated with the holder
shall be deemed held by such holder, and any holder which is a partnership shall
be deemed to hold any shares of Preferred Stock and/or Conversion Stock
originally purchased by such holder and subsequently distributed to partners of
such holder, which have not been resold by such partners.
13.2 When shares of Preferred Stock are counted together with
shares of Conversion Stock, or shares of Common Stock that are not Conversion
Stock, such shares of Preferred Stock shall be counted on an as-converted into
Common Stock basis, and the term "Conversion Stock" shall mean only the shares
of Common Stock which have been issued pursuant to conversion of Preferred
Stock.
14. Amendment. Any provision of this Agreement may be amended or
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable
Securities then outstanding or deemed to be outstanding. Any amendment or waiver
16
<PAGE> 17
effected in accordance with this Section 14 shall be binding upon each Investor
and each Holder of Registrable Securities at the time outstanding or deemed to
be outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
15. Governing Law. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of Delaware. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of Delaware with
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers, and other
relations between the parties arising under this Agreement.
16. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding the matters set forth
herein. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon the successors, assigns,
heirs, executors and administrators of the parties hereto.
17. Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or three (3) days after
deposit with the United States mail, by registered or certified mail, postage
prepaid, addressed (a) if to an Investor, at such Investor's address as set
forth in the Purchase Agreement, or at such other address as such Investor shall
have furnished to the Company in writing in accordance with this Section 17, (b)
if to any other holder of Preferred Stock or Conversion Stock, at such address
as such holder shall have furnished the Company in writing in accordance with
this Section 17, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company, at its principal
office.
18. Attorneys' Fees. In the event that any suit or action is instituted
to enforce any provision in this Agreement, the prevailing party shall be
entitled to all costs and expenses of maintaining such suit or action, including
reasonable attorney's fees.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
20. Amendment and Restatement of Registration and Investor Rights
Agreement. This Agreement hereby amends and restates in its entirety the
Registration and Investor Rights Agreement dated January 8, 1998 between the
Company, Warburg, Pincus Ventures, L.P. and SI Venture Fund, L.L.C.
17
<PAGE> 18
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
SkillSoft Corporation
a Delaware corporation
By: /s/ Charles Moran
-------------------------------------------------
By: Charles Moran
Title: President and Chief
Executive Officer
"INVESTORS"
Warburg, Pincus Ventures, L.P.,
By: Warburg, Pincus & Co.
Its: General Partner
By: /s/ Stewart Gross
-------------------------------------------------
Title: Partner
Si Venture Fund, L.L.C.,
a Delaware limited liability company
By: /s/ John T. Halligan
-------------------------------------------------
Title: Managing Member
/s/ William Coleman
- ----------------------------------------------------
William T. Coleman III, Trustee Coleman Family Trust
/s/ James Adkisson
- ----------------------------------------------------
James Adkisson
/s/ Ching Yuen Yau
- ----------------------------------------------------
Ching Yuen Yau
18
<PAGE> 1
Exhibit 21.01
SUBSIDIARIES
SkillSoft U.K. Ltd
SkillSoft International Holding Corporation
<PAGE> 1
Exhibit 23.02
Consent of Independent Public Accountants
As Independent Public Accountants, we hereby consent to the use of our
Report (and to all references to our Firm) including in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1
<CASH> 623,322
<SECURITIES> 3,341,702
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,081,168
<PP&E> 555,119
<DEPRECIATION> (85,726)
<TOTAL-ASSETS> 4,550,561
<CURRENT-LIABILITIES> 1,355,444
<BONDS> 0
0
11,951,541
<COMMON> 3,696
<OTHER-SE> (8,760,120)
<TOTAL-LIABILITY-AND-EQUITY> 4,550,561
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,609,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,272,541)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,272,541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,272,541)
<EPS-BASIC> (2.70)
<EPS-DILUTED> (2.70)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JUL-31-1999
<EXCHANGE-RATE> 1
<CASH> 25,442
<SECURITIES> 498,560
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,111,065
<PP&E> 627,683
<DEPRECIATION> (180,747)
<TOTAL-ASSETS> 2,558,001
<CURRENT-LIABILITIES> 1,927,611
<BONDS> 0
0
16,951,435
<COMMON> 4,106
<OTHER-SE> (16,325,151)
<TOTAL-LIABILITY-AND-EQUITY> 2,558,001
<SALES> 1,088,224
<TOTAL-REVENUES> 1,088,224
<CGS> 254,455
<TOTAL-COSTS> 254,455
<OTHER-EXPENSES> 8,595,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,641,914)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,641,914)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,641,914)
<EPS-BASIC> (1.91)
<EPS-DILUTED> (1.91)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> OCT-15-1997
<PERIOD-END> JAN-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,650,637
<SECURITIES> 4,371,333
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,021,970
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,021,970
<CURRENT-LIABILITIES> 703,129
<BONDS> 0
0
6,957,774
<COMMON> 2,010
<OTHER-SE> (640,943)
<TOTAL-LIABILITY-AND-EQUITY> 7,021,970
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 827,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (824,433)
<INCOME-TAX> 0
<INCOME-CONTINUING> (824,433)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (824,433)
<EPS-BASIC> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
