<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1999
REGISTRATION NO. 333-86815
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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. [ ]
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 NOVEMBER 5, 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 have made 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
[Graphics appearing on inside front cover: Picture of a globe in the center of a
spider's web with a software program screen in the center of the globe, against
a background of various customer names, with the statement "SkillSoft Web-based
Learning on Demand for Competitive Advantage" in the foreground.]
[Graphics appearing on gatefold following inside from cover: Picture of a globe
in the center of a spider's web with a software program screen in the center of
the globe and several software program screens and boxes around the web labeled
"Performance Support," "Built for the Web," "Content Coverage," "Instructional
Design," "Assessment and Online Mentoring" containing product descriptions
superimposed on the web or on its periphery. The upper left corner states "Key
Elements of the SkillSoft Web-based Learning Solution" and the lower left corner
states "SkillSoft Web-based Learning on Demand for Competitive Advantage.]
<PAGE> 4
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.............................. 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT............................ 40
CERTAIN TRANSACTIONS.................. 47
PRINCIPAL STOCKHOLDERS................ 48
DESCRIPTION OF CAPITAL STOCK.......... 50
SHARES ELIGIBLE FOR FUTURE SALE....... 52
UNDERWRITING.......................... 54
NOTICE TO CANADIAN RESIDENTS.......... 57
LEGAL MATTERS......................... 58
EXPERTS............................... 58
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 58
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> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully.
We are a provider of training courses that are accessible by users via a
Web browser through corporate intranets or remotely through the internet. Our
courses are targeted at Fortune 500 and other large companies and 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
courses and our online performance support tools.
Our library of 143 courses 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. We develop all of our courses in cooperation with
outside organizations that provide course content or assemble the courses
according to our design models.
Our online performance support tools, which are accessible through a Web
browser via a computer network or the internet, are designed to assist users to
improve their ability to perform job related tasks. These performance support
tools include:
- 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 500 topical refreshers
and worksheets that are accessible online and designed to assist users
with job-related tasks.
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 Fortune 500 companies and other large
businesses, governmental organizations and educational institutions. As of
September 30, 1999, we had 36 customers. Among our better known customers are
Adobe, Citibank, Dayton Hudson, EMC, Ernst & Young, Fluor Daniel, GTE, IBM and
National Car Rental.
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.
1
<PAGE> 6
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 Web-based training
solution provides a number of significant advantages over other technology-based
training products -- such as CD-ROMS, satellite broadcasts and client/server
applications -- 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;
- performance support tools that are accessible by using a Web browser via
a computer network or the internet, such as Search-and-Learn technology,
Online Mentoring and Online Job Aids; these tools allow 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 features that allow users to
interact easily and intuitively with our programs, without prior training
or instruction;
- improved means of product and user support through distribution of
products and updates over the internet or corporate intranets; and
- increased ability for users to track and bookmark their progress, and for
administrators to monitor use and effectiveness of courses.
Our Web-based products represent a new and emerging approach for the soft
skills training market. Our products apply new technological capabilities of the
internet, such as search engines, which allow a user to quickly locate and
access information without having to know where that information resides, and
hypertext links, which allow a user to use a computer mouse to click on
highlighted text in one electronic document to locate and display other
electronic documents. As a result, 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 goal 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 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.
We commenced operations in January 1998 and commercially released our first
product in March 1999. Our net loss for the six months ended July 31, 1999 was
$7,642,000 and our accumulated deficit through July 31, 1999 was $16,739,000.
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
2
<PAGE> 7
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.
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.
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 30, 1999. This number
does not include 1,046,083 shares of common stock issuable upon the exercise of
stock options outstanding on September 30, 1999.
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.
3
<PAGE> 8
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> 9
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
BECAUSE WE BEGAN OPERATIONS ONLY RECENTLY AND HAVE A LIMITED NUMBER OF CUSTOMERS
AND A LIMITED AMOUNT OF REVENUE, YOU COULD HAVE DIFFICULTY EVALUATING OUR
BUSINESS AND ITS FUTURE PROSPECTS
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 commenced operations in January 1998 and
commercially released our first product in March 1999. Although we do not
believe that our business will be dependent upon any one customer in the future,
one customer accounted for 51% of our limited revenue through July 31, 1999.
WE HAVE INCURRED SUBSTANTIAL LOSSES, AND EXPECT TO CONTINUE TO INCUR THEM IN THE
FUTURE, AND WE MAY NOT BE ABLE TO ACHIEVE OR MAINTAIN PROFITABILITY, WHICH MAY
ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
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 first
several quarters of the fiscal year ending January 31, 2002, 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 ALLEGING, AMONG
OTHER THINGS, MISAPPROPRIATION OF TRADE SECRETS; THIS LITIGATION WILL CONTINUE
TO BE COSTLY AND DIVERT THE EFFORTS OF OUR MANAGEMENT AND MAY ULTIMATELY
RESTRICT OUR ABILITY TO DO BUSINESS
SkillSoft, several of our executives, two of our key employees and our
largest investor are involved in a lawsuit brought by National Education
Training Group, Inc. (NETg), the former employer of these individuals. 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, intentionally interfered with NETg's
business and employees and breached provisions of a license agreement with NETg
relating to the use of its software. NETg maintains that the trade secrets
allegedly misappropriated by SkillSoft and the other defendants include:
- various aspects of the design and functionality of its education and
training software products;
- customer lists and information;
- distribution channels and relationships with course developers and other
service providers; and
- the business plan to develop soft skills products for use in a Web
environment.
The claims seek injunctive relief against the defendants demanding the
return, and no future use by these defendants, of the alleged trade secrets. The
claims also seek compensatory damages of $400 million, exemplary damages in the
additional amount of $400 million and punitive damages in
5
<PAGE> 10
excess of $10 million. Named as defendants in the lawsuit, in addition to
SkillSoft, are Charles E. Moran, Jerald A. Nine, Jr., Mark A. Townsend, Lee A.
Ritze, Dennis E. Brown, Warburg, Pincus Ventures, L.P., our largest investor,
and each partner of Warburg.
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 have any or all of the following significant adverse
effects on our business and financial performance:
- 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 the description of this lawsuit set forth in "Business -- Legal Proceedings"
on page 38 of this prospectus.
OUR LIMITED OPERATING HISTORY DOES NOT AFFORD SIGNIFICANT FINANCIAL DATA UPON
WHICH TO FORECAST QUARTERLY REVENUE OR OPERATING RESULTS, AND OUR OPERATING
RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER DUE TO THE NATURE OF OUR BUSINESS,
WHICH COULD HAVE A NEGATIVE IMPACT ON THE PRICE OF OUR COMMON STOCK
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. 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 quarterly operating results may fluctuate as a
result of a variety of factors, including:
- 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;
- seasonality -- due to the budget and purchasing cycles of our customers,
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 expenses we incur 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.
OUR BUSINESS WILL SUFFER 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
6
<PAGE> 11
Web-based products for education and training. The early stage of development of
the market for Web-based education and training makes it difficult for us to
predict customer demand accurately. 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 severely limit the growth of our business
and adversely affect our financial performance.
INTENSE COMPETITION FROM OTHER EDUCATION AND TRAINING COMPANIES COULD IMPAIR OUR
ABILITY TO GROW AND TO ACHIEVE PROFITABILITY
The market for soft skills education and training is fragmented and highly
competitive. Increased competition may result in lost sales and may force us to
lower prices. We expect that competition in this market will increase
substantially in the future for a number of reasons which are set forth in
"Business -- Competition" on page 36.
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 deployment over the internet and
corporate intranets.
- 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.
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.
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, IPX, 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. 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.
OUR COURSE CONTENT PROVIDERS SUPPLY US WITH THE EDUCATIONAL CONTENT OF OUR
COURSES AND ARE GENERALLY NOT RESTRICTED FROM DEVELOPING SIMILAR CONTENT FOR OUR
COMPETITORS, WHICH COULD MAKE IT EASIER FOR OUR COMPETITORS TO COMPETE WITH US
We rely on independent third parties to provide us with the educational
content for our courses. Our agreements with these content providers do not
restrict them from developing similar course content for our competitors or from
competing directly with us. As a result, our competitors may be able to
duplicate some of our course content and may, therefore, find it easier to enter
the market for soft skills education and training.
7
<PAGE> 12
OUR SUCCESS DEPENDS ON THE SERVICES OF CHARLES E. MORAN AND CERTAIN OTHER KEY
EMPLOYEES
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 result in less effective
development of our products and management of our business, which could have a
material adverse effect on our business and financial performance.
OUR FUTURE GROWTH DEPENDS ON SUCCESSFUL HIRING AND RETENTION, PARTICULARLY WITH
RESPECT TO SALES, MARKETING AND DEVELOPMENT PERSONNEL, AND WE MAY BE UNABLE TO
HIRE AND RETAIN THE SKILLED PERSONNEL WE NEED TO SUCCEED
Our failure to attract and retain sufficient skilled personnel may limit
the rate at which we can grow, may adversely affect the quality or availability
of our products and may result in less effective management of our business, any
of which may harm our business and financial performance. 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.
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
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 Fortune 500 and other large 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.
8
<PAGE> 13
WE ARE GROWING AND EXPECT TO CONTINUE TO GROW, AND WE MAY BE UNABLE TO MANAGE
THIS GROWTH EFFECTIVELY
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 the efficiency of our operations, any of which could have a
material adverse effect on our business and financial 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 September 30, 1999, the number of our employees increased from 45 to 102.
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.
BECAUSE MANY OF OUR COURSES AND TECHNOLOGIES ARE STILL UNDER DEVELOPMENT AND WE
EXPECT TO CONTINUE TO DEVELOP NEW COURSES AND ENHANCE OUR TECHNOLOGIES, OUR
BUSINESS WILL SUFFER IF WE ARE UNABLE TO INTRODUCE THESE 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.
BECAUSE OUR PRODUCTS AND SERVICES MAY NOT BE VIEWED BY OUR CUSTOMERS AS
ESSENTIAL TO THEIR BUSINESS, DEMAND FOR OUR PRODUCTS MAY BE ESPECIALLY
SUSCEPTIBLE TO ADVERSE ECONOMIC CONDITIONS
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. 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.
WE MUST CONTINUALLY INTRODUCE NEW PRODUCTS, AND OUR PRODUCTS MUST ADAPT TO
FREQUENT CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS, AND WE MAY HAVE
DIFFICULTY INTRODUCING NEW PRODUCTS OR KEEPING UP WITH THESE CHANGES
The market for 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.
THE NATURE OF OUR PRODUCTS MAKES THEM PARTICULARLY VULNERABLE TO PERFORMANCE
PROBLEMS, AND ANY SUCH PROBLEMS COULD REDUCE OUR REVENUE, MARKET SHARE OR THE
DEMAND FOR OUR PRODUCTS
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. 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
9
<PAGE> 14
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.
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.
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. We cannot assure you that we will be successful in managing
these risks. 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.
BECAUSE MANY USERS OF OUR COURSES ACCESS THEM OVER THE INTERNET, 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 hosting services and who therefore
access courses from SkillSoft-managed servers via the internet. 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.
BECAUSE OUR PRODUCTS, AS WELL AS OUR OPERATIONS AND THOSE OF OUR CUSTOMERS,
DEPEND ON THE USE OF COMPUTER SOFTWARE AND HARDWARE, 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
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 as a result of costs incurred to fix our products and internal
10
<PAGE> 15
systems or delays in delivery or purchases of our products because of problems
experienced by our vendors and customers. 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 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" on page 17 of this
prospectus 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, PARTICULARLY BECAUSE WE EXERT LIMITED CONTROL OVER THE CONTENT OF
OUR COURSES
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.
Any such claims, with or without merit, could subject us to costly litigation
and the diversion of our financial resources and management personnel. The risk
of such claims is exacerbated by the fact that our course content is provided by
third parties and that we exert limited control over our course content.
Further, if those claims are successful, we may be required to alter the
content, pay financial damages or obtain content from others.
OUR PRODUCTS MAY BE SUSCEPTIBLE TO CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS
INFRINGE UPON THEIR COPYRIGHTS OR PATENTS, WHICH 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 have a material adverse effect on our
business and financial performance by substantially increasing our costs. 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" on page
54 of this prospectus for more information regarding how the initial public
offering price was determined.
11
<PAGE> 16
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
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.
THE SIGNIFICANT CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK WILL LIMIT YOUR
ABILITY TO INFLUENCE CORPORATE ACTIONS
The concentration of ownership of our common stock 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. 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.
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" on page 50 of this prospectus 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" on page 52 of this prospectus 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> 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
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.
This prospectus includes estimates made by independent parties relating to
market size and growth. Those estimates involve a number of assumptions and
limitations. We cannot assure you that those estimates of market size are
accurate or that those projections of market growth will be achieved.
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 $ . The principal purpose of this
offering is to create a public market for our common stock. This public market
will facilitate future access to the public equity markets and enhance our
ability to use our common stock as a means of attracting and retaining key
employees and as consideration for acquisitions. 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> 18
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> 19
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> 20
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 YEAR SIX MONTHS ENDED
(OCTOBER 15, 1997) 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(1):
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(1):
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>
- ---------------
(1) See Note 2(e) of Notes to Financial Statements of SkillSoft included
elsewhere in this prospectus.
16
<PAGE> 21
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 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, and 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. We
also derive revenue on a pay-for-use basis under which some customers are
charged based on the number of courses accessed by users.
The annual license fee for the first year is generally billed in advance.
Revenue is recognized either at the time of delivery of products or over the
course of the contract, depending on specific contract terms. 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 that are exercisable other than on the contract
anniversaries or flexible payment terms, 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. Revenue is
recognized as billed monthly or quarterly under the pay-for-use model. 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.
17
<PAGE> 22
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 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>
18
<PAGE> 23
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 March 1999. This revenue was derived from
fulfilling product orders for the 24 customer license agreements signed during
the six months ended July 31, 1999, of which one customer accounted for more
than 50% of revenue.
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 amounting to approximately $480,000 and $2,000,000, respectively. 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,
travel costs and facility costs amounting to $1,500,000, $110,000, $260,000,
$290,000 and $300,000, respectively. 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 due to increased 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 year 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> 24
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, by $30,000, in the use of outside
contractors and lower recruiting expenses, by $26,000. 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.
As of July 31, 1999, our principal source of liquidity was our cash and
cash equivalents and marketable securities balances, which totaled approximately
$500,000. As of the end of fiscal 1998 and 1999, our cash and cash equivalents
and marketable securities balances totaled approximately $7.0 million and $4.0
million, respectively. The overall increase in cash and cash equivalents and
marketable securities balances during fiscal 1998 was due to proceeds from the
issuance of Series A convertible preferred stock. The overall decrease in cash
and cash equivalents and marketable securities during fiscal 1999 and during the
six months ended July 31, 1999 was due to the funding of operations, partially
offset by proceeds from the issuance of Series B convertible preferred stock.
20
<PAGE> 25
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.
Our primary investing activities were purchases of property and equipment,
and purchases and maturation of marketable securities. Property and equipment
purchases were approximately $0, $555,000, and $317,000 in fiscal 1998, fiscal
1999 and the six months ended July 31, 1999, respectively. Purchases and
maturation of marketable securities generated a net cash outflow of
approximately $4.4 million in fiscal 1998 compared to a net cash inflow of
approximately $1.0 million and $2.8 million in fiscal 1999 and the six months
ended July 31, 1999, respectively.
Cash provided by financing activities was approximately $7.1 million, $5.1
million and $5.0 million in fiscal 1998, fiscal 1999 and the six months ended
July 31, 1999, respectively. This consisted of proceeds from the issuance of
Series A and B convertible preferred stock, as well as sale of common stock.
Working capital was approximately $6.3 million, $2.7 million and $0.2
million as of January 31, 1998, 1999 and July 31, 1999, respectively. Total
assets were approximately $7.0 million, $4.6 million and $2.6 million as of
January 31, 1998, 1999 and July 31, 1999, respectively. These decreases were
attributable to the funding of operations and product development.
We had cash, cash equivalents and short-term investments totalling $524,002
as of July 31, 1999 and $1,695,335 as of September 30, 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;
21
<PAGE> 26
- 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
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
22
<PAGE> 27
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.
23
<PAGE> 28
BUSINESS
COMPANY OVERVIEW
We are a provider of training courses that are accessible by users via a
Web browser through corporate intranets or remotely through the internet. Our
courses are targeted at Fortune 500 and other large companies and 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 143 courses, which encompasses a wide array of
professional effectiveness skills and business topics; and
- our Web-based online performance support tools, such as Search-and-Learn
technology, Online Mentoring, and Online Job Aids.
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 access to courses;
- online performance support tools;
- easier to use products;
- improved means of product and user support; 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.
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, which allow
a user to quickly locate and access information without having to know where
that information resides, and hypertext links, which allow a user to use a
computer mouse to click on highlighted text in one electronic document to locate
and display other electronic documents, 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.
24
<PAGE> 29
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. We believe that 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 -- 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, an industry analyst, 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 training products that
can be accessed via Web browsers and incorporate Web technologies 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
25
<PAGE> 30
cost-efficient than classroom instruction and traditional technology-based
training. International Data Corporation, an industry analyst, 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 143
courses, as of September 30, 1999, represent the largest number of consistently
designed courses accessible via Web browsers 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" on page 30 of
this prospectus for a detailed description of our products.
Web-Based Performance Support
Our Web-based architecture and deployment strategy enables us to provide a
number of 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 SkillSoft
courses, in the same manner as one would use an internet search engine, so that
users can quickly locate and use instructional software that helps them with a
specific job-related task. 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" on page 31 of this prospectus for detailed description of
features of our products based on new Web technologies to support our users in
their training.
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. Our software is specifically
designed to perform optimally when accessed via a Web browser through corporate
intranets or remotely through the internet and to scale well to support large
numbers of users. We believe that this 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
26
<PAGE> 31
computers. Our access technologies make it possible to scale up the use
of our products 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, our products are designed to reduce the risk of technical
problems and enhance network security because they are designed to be
used without "plug-in" software, which is software written for specific
computer processors and operating systems and must be installed on the
user's computer for use in conjunction with a web browser. In addition,
our products employ advanced techniques to reduce the size of data files
and to retrieve and store quickly accessible copies of text, audio and
graphic files, which allows our products to deliver high-quality
performance within the limitations in the amount of data our customers'
corporate intranets and internet connections can handle at any given
time.
- 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" on page
32 of this prospectus for a detailed description of Web technologies
incorporated in our products.
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" on page 30 of this prospectus for a detailed
description of components of our 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 our products. We have also recently introduced 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
27
<PAGE> 32
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" on page 40 of this prospectus for more information on the
experience of our management team.
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 143 as of September 30, 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 500 as of September
30, 1999 to our goal of over 700 by January 31, 2000;
- extending the ability of our courses to interact and operate with
third-party learning management software;
- 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.
28
<PAGE> 33
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 Fortune 500 market. We
currently have 41 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 large and
successful companies such as 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 September 30, 1999, we had signed reseller agreements
with 31 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,
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
29
<PAGE> 34
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 143 courses as
of September 30, 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.
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 features that allow users to interact easily and intuitively
with our programs and makes rich use of color, illustrations and
photographs.
30
<PAGE> 35
- 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 features based on new Web technologies 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 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 to customize them to meet the specific needs of the
customer or its employees by using word processors or editors that work
with
31
<PAGE> 36
Hyper Text Markup Language, referred to as HTML (a standard used by Web
browsers to render electronic documents on a computer screen).
- 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 HTML and the computer
programming languages Java and JavaScript. To reduce the risk of technical
problems that would limit access to our training materials, our products do not
use "plug-in" software, which is software written for specific computer
processors and operating systems and must be installed on the user's computer
for use in conjunction with a web browser. In addition, our products employ
advanced techniques to reduce the size of data files and to retrieve and store
quickly accessible copies of text, audio and graphic files, which allows our
products to deliver high-quality performance within the limitations in the
amount of data our customers' corporate intranets and internet connections can
handle at any given time. 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 make our
courses available 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 make it possible to
scale up the use of our products 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. These users access courses by connecting to
their company's Web servers via a dial-in connection or over the
internet, or by connecting via the internet to a Web server managed by
SkillSoft on behalf of their company. 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 hosting services for companies who prefer to have users access our
courses from SkillSoft-managed servers via the internet rather than host the
courses on their own intranet. For many customers, this option can significantly
simplify and shorten the implementation process.
32
<PAGE> 37
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.
We currently have agreements with six content providers, each of which
expires on December 31, 1999, pursuant to which the content provider agrees to
develop a number of courses, generally from five to ten, at a set price per
course. We also may engage the content provider to supply additional courses.
Under our agreements, the content provider assigns all of its right, title and
interest in the course and course materials to us.
Our course development software tools are 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.
33
<PAGE> 38
Given the nature of our product offerings, these services and support do
not require significant resources. As of September 30, 1999, our professional
services organization consisted of 10 persons.
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 September 30, 1999 we employed 36 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 Fortune 500 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 large 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.
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.
34
<PAGE> 39
Our marketing organization utilizes a variety of programs to support our
sales team. As of September 30, 1999, our marketing organization consisted of
five employees. Our marketing programs include:
- telemarketing;
- product and strategy updates with industry analysts;
- 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 Fortune 500 and other large 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 list of our some of our
better known customers:
<TABLE>
<S> <C>
Adobe Finova
American Red Cross Fluor Daniel
Avnet Fujitsu
BEA Systems General American Life
Citibank GTE
Dayton-Hudson Highmark BC/BS
EMC Kurt Salmon
Ernst & Young National Car Rental
</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.
GTE accounted for 51% of our revenue for the six months ended July 31,
1999. No other customer accounted for more than 10% of our revenue during that
period.
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.
35
<PAGE> 40
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 September 30, 1999, we had 22 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 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 access via Web browsers.
- 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;
36
<PAGE> 41
- 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 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 September 30, 1999, we had 102 employees, of whom 52 were engaged in
sales and marketing, 10 were engaged in customer service and support, 20 were
engaged in product
37
<PAGE> 42
development, one was engaged in product production and 19 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 15,500 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
believe that our existing facilities are adequate to meet our current needs and
that suitable additional or substitute space will be available on commercially
reasonable terms when needed.
LEGAL PROCEEDINGS
SkillSoft, several of our executives, two of our key employees and our
largest investor are named as defendants in a lawsuit pending in the Circuit
Court of Cook County, 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, Dennis E. Brown and Lee
A. Ritze misappropriated trade secrets of NETg, and SkillSoft, Mr. Moran
and Mr. Nine intentionally interfered with NETg's "prospective economic
advantage";
- SkillSoft and Mr. Ritze breached provisions of a license agreement with
NETg relating to the use of its software; 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.
NETg maintains that the trade secrets allegedly misappropriated by
SkillSoft and the other defendants includes:
- various aspects of the design and functionality of its education and
training software products;
- customer lists and information;
38
<PAGE> 43
- distribution channels and relationships with course developers and other
service providers; and
- the business plan to develop products for use in a Web environment.
The claims seek injunctive relief against SkillSoft and Messrs. Moran, Nine,
Townsend, Brown and Ritze demanding the return, and no future use by these
defendants, of the alleged trade secrets. The claims also seek compensatory
damages of $400 million exemplary damages in the additional amount of $400
million and punitive damages in excess of $10 million.
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 have
any or all of the following significant adverse effects on our business and
financial performance:
- 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.
We are not a party to any other material legal proceedings.
39
<PAGE> 44
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........................ 50 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 D. 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>
Directors and Executive Officers:
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
40
<PAGE> 45
of Bear Automotive. He previously held senior financial and operational
positions with SPX Corporation, U.S. Industries and Cenco, Inc.
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 electronic 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.
Other Key Employees:
Dennis E. Brown joined SkillSoft in May 1998 as Director of Marketing
Communications. From March 1993 to May 1998, he served as Senior Director of
Product Development at NETg.
Eric W. Ertel joined SkillSoft in February 1998 as Director of Software
Development. From August 1995 to February 1998, Mr. Ertel served as Principal
Software Engineer at VideoServer. From January 1995 to July 1997, he served as
an engineer at Sytron Corporation, and, from April 1988 to January 1995, he
served as Principal Engineer at Digital Equipment Corporation.
David L. Eubanks joined SkillSoft in September 1998 as Vice President of
Western Regional Sales. From July 1990 to September 1998, Mr. Eubanks served as
Director of Educational Sales and Director of Business and Channel Development
at NETg.
Kristina E. Johnson joined SkillSoft in June 1998 as Director of Creative
Design. From November 1987 to June 1998, Ms. Johnson served as a Graphic
Designer at Digital Equipment Corporation.
Charles D. King joined SkillSoft in July 1998 as Vice President of Eastern
Regional Sales. From November 1994 to July 1998, Mr. King served in various
managerial sales and marketing positions at CBT Systems, Inc., including
Director of Global Markets, Vice President of Northeast Regional Sales and
Regional Vice President.
Steven A. Lichtman joined SkillSoft in March 1999 as Director of Channel
Sales. From August 1998 to March 1999, Mr. Lichtman served as National Sales
Manager at Xebec / McGraw-Hill. From October 1997 to August 1998, Mr. Lichtman
served as Vice President and Sales Manager for
41
<PAGE> 46
North America at Xebec Interactive Learning. From March 1992 to September 1997
he served as President and Director of Sales and Marketing at Best Restaurant
Publications.
Lee A. Ritze joined SkillSoft in February 1998 as Senior Director of
Marketing and Professional Services. From June 1985 to February 1999, Mr. Ritze
served as Product Marketing Director at NETg.
Sally H. Welch joined SkillSoft in February 1998 as Director of
Instructional Design. From August 1998 to January 1999, Ms. Welch served as
Senior Instructional Designer at Motorola University. From August 1995 to August
1997 she served as Director of Skill Builder Engineering at NETg. Ms. Welch
served as Instructor Developer II at M.D. Anderson Cancer Center from June 1989
to December 1994.
Kevin T. Young joined SkillSoft in July 1999 as Vice President and Managing
Director of International Sales and Marketing. From December 1998 to June 1999,
Mr. Young served as Sales Director, United Kingdom at CBT Systems. From January
1993 to December 1998, Mr. Young served in various sales positions at NETg,
including Regional Sales Manager, Sales Director of Key Accounts and Managing
Director of Pacific Operations.
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 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" on page 44 of this
prospectus for the terms of the 1999 Non-Employee Director Stock Option Plan.
42
<PAGE> 47
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
midpoint of the estimated public offering price range ($ ) 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 the midpoint
of the estimated public offering price range ($ ), was as follows:
Mr. Moran: none; Mr. McDonald: 300,000 shares, $ ; Mr. Townsend:
600,000 shares, $ ; and Mr. Nine: 700,000 shares, $ . The
holders of those shares of restricted stock will be entitled to receive any
dividends paid by SkillSoft on its common stock.
(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.
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
43
<PAGE> 48
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:
- the end of the second consecutive quarter that SkillSoft achieves
quarterly revenue in excess of $1,000,000,
- the fourth anniversary of the date of the employment agreement or
- 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.
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 30, 1999, 2,239,006 shares had
been issued under the Incentive Plan and 1,046,083 shares were subject to
44
<PAGE> 49
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.
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
45
<PAGE> 50
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
- for any breach of their duty of loyalty to the corporation or its
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law or
- 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.
46
<PAGE> 51
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.
47
<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of SkillSoft's common stock as of September 30, 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 30, 1999, but
excludes shares of common stock underlying options held by any other person.
Percentage ownership is based on 14,206,149 shares of common stock outstanding
as of September 30, 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 1.3
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
48
<PAGE> 53
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.
49
<PAGE> 54
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 30, 1999, there were outstanding 14,206,149 shares of common
stock held by 28 stockholders of record and options to purchase an aggregate of
1,046,083 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 reference is made 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 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" on page 52 of this
prospectus.
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 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
50
<PAGE> 55
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.
51
<PAGE> 56
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 30, 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 14,206,149 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, 12,466,155 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, 12,457,905 of
these shares are subject to lock-up agreements. The remaining 1,739,994 shares
become eligible for resale in the public market at various dates thereafter, of
which 1,726,175 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 number of shares within
any three-month period. That 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
52
<PAGE> 57
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 2,689,244 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" on page 44 of this prospectus.
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.
53
<PAGE> 58
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
54
<PAGE> 59
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.
55
<PAGE> 60
- 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.
56
<PAGE> 61
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.
57
<PAGE> 62
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. 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.
58
<PAGE> 63
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> 64
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> 65
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> 66
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> 67
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 TOTAL
NUMBER OF $.001 PAR ADDITIONAL DEFERRED FROM ACCUMULATED STOCKHOLDERS'
SHARES VALUE PAID-IN CAPITAL COMPENSATION STOCKHOLDERS DEFICIT EQUITY
--------- --------- --------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCORPORATION (OCTOBER 15,
1997)....................... -- $ -- $ -- $ -- $ -- $ -- $ --
Initial capitalization....... -- -- 349,740 -- (166,250) -- 185,500
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $42,226.......... -- -- -- -- -- -- 6,957,774
Net loss.................... -- -- -- -- -- (824,433) (824,433)
---------- ------- ----------- --------- --------- ------------ -----------
BALANCE, JANUARY 31, 1998.... -- -- 349,740 -- (166,250) (824,433) 6,318,841
Issuance of Class A
restricted common stock... -- -- 293,364 -- (140,000) -- 155,050
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $6,234........... -- -- -- -- -- -- 4,993,767
Net loss.................... -- -- -- -- -- (8,272,541) (8,272,541)
---------- ------- ----------- --------- --------- ------------ -----------
BALANCE, JANUARY 31, 1999.... -- -- 643,104 -- (306,250) (9,096,974) 3,195,117
Issuance of Class A
restricted common stock
(unaudited)............... -- -- 67,860 -- (32,813) -- 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)......... -- -- 754,156 (754,156) -- -- --
Amortization of deferred
compensation (unaudited).. -- -- -- 38,345 -- -- 38,345
Exercise of stock options
(unaudited)............... -- -- 3,491 -- -- -- 3,511
Net loss (unaudited)........ -- -- -- -- -- (7,641,914) (7,641,914)
---------- ------- ----------- --------- --------- ------------ -----------
BALANCE, JULY 31, 1999
(UNAUDITED)................. -- -- 1,468,611 (715,811) (339,063) (16,738,888) 630,390
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) $ 630,390
========== ======= =========== ========= ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 68
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)
Maturity 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> 69
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> 70
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 service revenue from
installation and technical support, extranet hosting and online mentoring
services, which is recognized as revenue as the service is performed. For the
six months ended July 31, 1999, the Company recognized approximately $12,000 of
service revenue. 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 unvested shares of
Class A Restricted common stock, common stock options and convertible preferred
stock are antidilutive, because the Company has recorded a net loss for all
periods presented. Unvested shares of Class A Restricted common stock and common
stock options totaling 0, 1,002,810, 386,509 and 2,007,639 weighted average
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
F-8
<PAGE> 71
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
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 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> 72
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> 73
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.
See Note 6(b) for the restrictions on the Class A Restricted Common Stock.
(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> 74
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> 75
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 of $400,000,000, exemplary damages in the additional amount of
$400,000,000 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 the defense of this lawsuit, the
Company has recorded as expense legal fees of $416,717, $0 and $989,392 for the
fiscal year ended January 31, 1999 and the six months ended July 31, 1998 and
1999,
F-13
<PAGE> 76
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
respectively, which is included in general and administrative expenses in the
accompanying statements of operations.
(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, of which approximately $2,211,000
was allocated to the beneficial conversion feature in accordance with Emerging
Issues Task Force Issue No. 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingency Adjustable Conversion Ratios" and
was fully amortized through retained earnings on the date of issuance.
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.
F-14
<PAGE> 77
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
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.
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
F-15
<PAGE> 78
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
the shares. In addition, these shares are subject to a restriction on transfer
of ownership, and the Company holds a right of first refusal option upon the
sale 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.
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.
F-16
<PAGE> 79
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
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>
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.
F-17
<PAGE> 80
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
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>
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>
F-18
<PAGE> 81
SKILLSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
(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-19
<PAGE> 82
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.......................... 41,625
Printing and engraving expenses............................. 165,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 150,000
Transfer agent and registrar fees and expenses.............. 14,000
Miscellaneous............................................... 61,487
--------
Total............................................. $750,000
========
</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 sold the securities listed below that were not registered under the
Securities Act. Exemption from registration under the Securities Act for each of
the following sales is claimed under Section 4(2) of the Securities Act because
these transactions were by an issuer net involving a public offering.
1. On December 10, 1997, SkillSoft issued and sold 1,900,000 shares of
its common stock to one accredited investor for an aggregate purchase price
of $332,500.
2. On December 10, 1997, SkillSoft issued and sold an aggregate of
110,000 shares of its common stock to two individuals, each of whom was an
accredited investor for an aggregate purchase price of $19,250.
3. On January 8, 1998, SkillSoft issued and sold an aggregate of
4,000,000 shares of its Series A preferred stock to two entities each of
which were accredited investors for an aggregate purchase price of
$7,000,000.
II-1
<PAGE> 83
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 one
accredited investor for an aggregate purchase price of $10,000,000.
5. On August 5, 1999, SkillSoft issued and sold an aggregate of
1,195,238 of its Series C preferred stock to five purchasers, each of whom
or which was an accredited investor, for an aggregate purchase price of
$3,765,000.
In addition, between June 19, 1998 and September 30, 1999, SkillSoft issued
a total of 2,240,756 shares of common stock to thirteen individuals 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 Amended and Restated 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.
10.09 Lease dated February 18, 1998, as amended, between SkillSoft
and Five N Associates.
10.10 Loan and Security Agreement dated June 18, 1999 between
SkillSoft and GreyRock Capital.
11.01 Computation of Net Loss Per Share.
21.01+ Subsidiaries.
</TABLE>
II-2
<PAGE> 84
<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.
+ Previously filed.
(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> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Nashua, New Hampshire on November 4, 1999.
SKILLSOFT CORPORATION
By: /s/ CHARLES E. MORAN
------------------------------------
Charles E. Moran
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the 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 November 4, 1999
- --------------------------------------------------- and Chairman of the Board
Charles E. Moran (Principal Executive Officer)
* Chief Financial Officer (Principal November 4, 1999
- --------------------------------------------------- Financial and Accounting Officer)
Thomas J. McDonald
* Director November 4, 1999
- ---------------------------------------------------
Stewart K.P. Gross
* Director November 4, 1999
- ---------------------------------------------------
C. Samantha Chen
* Director November 4, 1999
- ---------------------------------------------------
James Adkisson
* Director November 4, 1999
- ---------------------------------------------------
William T. Coleman III
*By: /s/ CHARLES E. MORAN
----------------------------------------------
Charles E. Moran
as Attorney-in-Fact
</TABLE>
II-4
<PAGE> 86
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 Amended and Restated 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.
10.09 Lease dated February 18, 1998, as amended, between SkillSoft
and Five N Associates.
10.10 Loan and Security Agreement dated June 18, 1999 between
SkillSoft and GreyRock Capital.
11.01 Computation of Net Loss Per Share.
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.
+ Previously filed.
<PAGE> 1
Exhibit 1.01
_________________ SHARES
SKILLSOFT CORPORATION
COMMON STOCK, PAR VALUE $.001 PER SHARE
UNDERWRITING AGREEMENT
____________ ___, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. SkillSoft Corporation, a Delaware corporation
("COMPANY"), proposes to issue and sell ____________ shares ("FIRM SECURITIES")
of its Common Stock, par value $.001 per share ("SECURITIES") and also proposes
to issue and sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than ____________ additional shares ("OPTIONAL
SECURITIES") of its Securities as set forth below. The Firm Securities and the
Optional Securities are herein collectively called the "OFFERED SECURITIES." As
part of the offering contemplated by this Agreement, Credit Suisse First Boston
Corporation (the "DESIGNATED UNDERWRITER") has agreed to reserve out of the Firm
Securities purchased by it under this Agreement, up to ____________ shares, for
sale to the Company's directors, officers, employees and other parties
associated with the Company (collectively, "PARTICIPANTS"), as set forth in the
Prospectus (as defined herein) under the heading "Underwriting" (the "DIRECTED
SHARE PROGRAM"). The Firm Securities to be sold by the Designated Underwriter
pursuant to the Directed Share Program (the "DIRECTED SHARES") will be sold by
the Designated Underwriter pursuant to this Agreement at the public offering
price. Any Directed Shares not orally confirmed for purchase by a Participant by
the end of the business day on which this Agreement is executed will be offered
to the public by the Underwriters as set
<PAGE> 2
forth in the Prospectus. The Company hereby agrees with the several Underwriters
named in Schedule A hereto ("UNDERWRITERS") as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-86815) relating to the
Offered Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("COMMISSION") and either (i) has been
declared effective under the Securities Act of 1933 ("ACT") and is not proposed
to be amended or (ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement ("INITIAL REGISTRATION STATEMENT") has
been declared effective, either (i) an additional registration statement
("ADDITIONAL REGISTRATION STATEMENT") relating to the Offered Securities may
have been filed with the Commission pursuant to Rule 462(b) ("RULE 462(B)")
under the Act and, if so filed, has become effective upon filing pursuant to
such Rule and the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial registration
statement or if an additional registration statement has been filed and the
Company does not propose to amend it, and if any post-effective amendment to
either such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment (if any)
to each such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c) ("RULE
462(C)") under the Act or, in the case of the additional registration statement,
Rule 462(b). For purposes of this Agreement, "EFFECTIVE TIME" with respect to
the initial registration statement or, if filed prior to the execution and
delivery of this Agreement, the additional registration statement means (i) if
the Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared effective by
the Commission or has become effective upon filing pursuant to Rule 462(c) or
(ii) if the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such amendment
or post-effective amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with respect to
such additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule 462(b).
"EFFECTIVE DATE" with respect to the initial registration statement or the
additional registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective Time,
including all information contained in the additional registration statement (if
any) and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
-2-
<PAGE> 3
information (if any) deemed to be a part of the initial registration statement
as of its Effective Time pursuant to Rule 430A(b) ("RULE 430A(B)") under the
Act, is hereinafter referred to as the "INITIAL REGISTRATION STATEMENT". The
additional registration statement, as amended at its Effective Time, including
the contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "ADDITIONAL REGISTRATION STATEMENT".
The Initial Registration Statement and the Additional Registration Statement are
herein referred to collectively as the "REGISTRATION STATEMENTS" and
individually as a "REGISTRATION STATEMENT". The form of prospectus relating to
the Offered Securities, as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("RULE 424(B)") under the Act or (if no such filing
is required) as included in a Registration Statement, is hereinafter referred to
as the "PROSPECTUS". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all material respects to the requirements of the Act and
the rules and regulations of the Commission ("RULES AND REGULATIONS") and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed, or will
conform, in all material respects to the requirements of the Act and the Rules
and Regulations and did not include, or will not include, any untrue statement
of a material fact and did not omit, or will not omit, to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (iii) on the date of this Agreement, the Initial Registration
Statement and, if the Effective Time of the Additional Registration Statement is
prior to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the Prospectus
is included, each Registration Statement and the Prospectus will conform, in all
material respects to the requirements of the Act and the Rules and Regulations,
and neither of such documents includes, or will include, any untrue statement of
a material fact or omits, or will omit, to state any material fact required to
be stated therein or necessary to make the statements therein not misleading. If
the Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the Prospectus
will conform in all material respects to the requirements of the Act and the
Rules and Regulations, neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
and no Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only such
information is that described as such in Section 7(b) hereof.
-3-
<PAGE> 4
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus; and the Company is duly qualified to do
business as a foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business requires
such qualification (except where the failure to be so qualified would not have a
material adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries, taken
as a whole (a "MATERIAL ADVERSE EFFECT")).
(d) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus; and each subsidiary of the Company is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and is
fully paid and nonassessable; and the capital stock of each subsidiary owned by
the Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding shares
of capital stock of the Company are, and, when the Offered Securities have been
delivered and paid for in accordance with this Agreement on each Closing Date
(as defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Offered Securities.
(f) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person that
would give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with this
offering.
(g) Except as described in the Prospectus, and except for
rights with respect to this offering which have been validly waived, there are
no contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such securities
in the securities registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Act.
(h) The Offered Securities have been approved for listing on
Nasdaq Stock Market's National Market, subject to notice of issuance.
-4-
<PAGE> 5
(i) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in connection
with the issuance and sale of the Offered Securities by the Company, except such
as have been obtained and made under the Act and such as may be required under
state securities laws.
(j) The execution, delivery and performance of this Agreement,
and the issuance and sale of the Offered Securities will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction over the Company or
any subsidiary of the Company or any of their properties, or any agreement or
instrument to which the Company or any such subsidiary is a party or by which
the Company or any such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary is subject, or the charter or by-laws of the
Company or any such subsidiary, and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated by this
Agreement.
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all other
properties and assets owned by them, in each case free from liens, encumbrances
and defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by them; and, except as
disclosed in the Prospectus, the Company and its subsidiaries hold any leased
real or personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental agencies
or bodies necessary to conduct the business now operated by them and have not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authority or permit that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate have
a Material Adverse Effect.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that might
have a Material Adverse Effect.
(o) Except as disclosed in the Prospectus, the Company and its
subsidiaries own, possess or can acquire on reasonable terms, adequate
trademarks, trade names and other rights to inventions, know-how, patents,
copyrights, confidential information and other intellectual property
(collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct the business
now operated by them and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material Adverse
Effect.
-5-
<PAGE> 6
(p) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect, or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of the
Offered Securities; and no such actions, suits or proceedings are threatened or,
to the Company's knowledge, contemplated.
(q) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of the
Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis; and
the schedules included in each Registration Statement present fairly the
information required to be stated therein; and the assumptions used in preparing
the pro forma financial information included in each Registration Statement and
the Prospectus provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein, the
related pro forma adjustments give appropriate effect to those assumptions, and
the pro forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement amounts.
(r) Except as disclosed in the Prospectus, since the date of
the latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole; and, except as disclosed in or contemplated by
the Prospectus, there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock.
(s) Except as described in the Prospectus, there are no
outstanding (i) securities or obligations of the Company convertible into or
exchangeable for any capital stock of the Company, (ii) warrants, rights or
options to subscribe for or purchase from the Company any such capital stock or
any such convertible or exchangeable securities or obligations or (iii)
obligations of the Company to issue any such capital stock, convertible or
exchangeable securities or obligations, or warrants, rights or obligations.
(t) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient in all material respects for purposes of
the prevention or detection of errors or irregularities in amounts that could be
expected to be material to the Company's financial statements and the recording
of transactions so as to permit the preparation of such financial statements in
conformity with generally accepted accounting principles.
(u) Neither the Company nor any of its subsidiaries is in
violation of (i) its charter or by-laws or (ii) except as described in the
Prospectus, any statute, rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction over the Company or
-6-
<PAGE> 7
any such subsidiary or any of their respective properties; and no event of
default (or event which with the giving of notice or the lapse of time, or both,
would constitute an event of defaults) exists under any agreement or instrument
to which the Company or any such subsidiary is a party or by which the Company
or any such subsidiary is bound or to which any of the properties of the Company
or any such subsidiary is subject, except, in each case, for violations or
events of default that, individually or in the aggregate, do not have, and are
reasonably likely not to have, a Material Adverse Effect.
(v) The Company and its subsidiaries carry or are entitled to
the benefits of insurance in such amounts and covering such risks as the Company
believes are generally maintained by companies of established repute engaged in
the same or a similar business, and all such insurance is in full force and
effect.
(w) The Company has not taken and will not take, directly or
indirectly, any action designed to or that could cause or result in the
stabilization or manipulation of the price of the Offered Securities to
facilitate the sale or resale of the Offered Securities.
(x) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940.
(y) Furthermore, the Company represents and warrants to the
Underwriters that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements thereto
will comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
law and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
(z) The Company has not offered, or caused the Underwriters to
offer, any Offered Securities to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $_______ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
-7-
<PAGE> 8
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters against payment of the purchase price in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC")
drawn to the order of the Company at the office of Hale and Dorr LLP, at
_________ A.M., New York time, on ___________, 1999 or at such other time not
later than seven full business days thereafter as CSFBC and the Company
determine, such time being herein referred to as the "FIRST CLOSING DATE". For
purposes of Rule 15c6-1 under the Securities Exchange Act of 1934, the First
Closing Date (if later than the otherwise applicable settlement date) shall be
the settlement date for payment of funds and delivery of securities for all the
Offered Securities sold pursuant to the offering. The certificates for the Firm
Securities so to be delivered will be in definitive form, in such denominations
and registered in such names as CSFBC requests and will be made available for
checking and packaging at the above office of CSFBC at least 24 hours prior to
the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "OPTIONAL CLOSING DATE," which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "CLOSING DATE"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of the Company, at the above office of Hale and Dorr LLP. The
certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of CSFBC at a reasonable time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
-8-
<PAGE> 9
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the Company
will file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph
(4)) of Rule 424(b) not later than the earlier of (i) the second business day
following the execution and delivery of this Agreement or (ii) the fifteenth
business day after the Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration statement as
filed or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not effect
such amendment or supplementation without CSFBC's consent; and the Company will
also advise CSFBC promptly of the effectiveness of each Registration Statement
(if its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally available
to its securityholders an earnings statement covering a period
-9-
<PAGE> 10
of at least 12 months beginning after the Effective Date of the Initial
Registration Statement (or, if later, the Effective Date of the Additional
Registration Statement) which will satisfy the provisions of Section 11(a) of
the Act. For the purpose of the preceding sentence, "AVAILABILITY DATE" means
the 45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth fiscal
quarter is the last quarter of the Company's fiscal year, "AVAILABILITY DATE"
means the 90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of
each Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M.,
New York time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other documents shall be so furnished as soon as available. The
Company will pay the expenses of printing and distributing to the Underwriters
all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as required
for the distribution.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities Exchange Act of 1934 or mailed to stockholders, and (ii) from time to
time, such other information concerning the Company as CSFBC may reasonably
request.
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement, for any filing fees and
other expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale under the laws
of such jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the National Association of Securities Dealers, Inc. of the Offered Securities,
for any travel expenses of the Company's officers and employees and any other
expenses of the Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
-10-
<PAGE> 11
indirectly, or file with the Commission a registration statement under the Act
relating to, any additional shares of its Securities or securities convertible
into or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC; provided that
the Company may (i) issue shares of Common Stock upon the conversion of shares
of its convertible preferred stock outstanding on the date hereof, (ii) issue
shares of Common Stock, and grant options for the purchase of Common Stock,
pursuant to its stock option plans in effect on the date hereof, and (iii) file
registration statements on Form S-8 with the Commission registering the shares
of Common Stock issuable under its stock option plans in effect on the date
hereof.
(j) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD
rules from sale, transfer, assignment, pledge or hypothecation for a period of
three months following the date of the effectiveness of the Registration
Statement. The Designated Underwriter will notify the Company as to which
Participants will need to be so restricted. The Company will direct the transfer
agent to place stop transfer restrictions upon such securities for such period
of time.
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Shares Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with the Underwriters that
the Company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the Directed
Shares are offered in connection with the Directed Share Program, provided the
Company is given reasonable advance notice by the Representatives of what it
must do to effect such compliance; provided, further, that the Company gives the
Representatives a list of foreign jurisdictions in sufficient time to give the
Company such reasonable advance notice.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
shall be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed shortly prior
to such Effective Time), of Arthur Andersen LLP confirming that they are
independent public accountants
-11-
<PAGE> 12
within the meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the financial statements and
schedules included in the Registration Statements comply as to form in
all material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by
the American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii) on the basis of the reviews referred to in
clause (ii) above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company who
have responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements
included in the Registration Statements do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial statements for
them to be in conformity with generally accepted accounting principles;
(B) at the date of the latest available
balance sheet read by such accountants, or at a subsequent specified
date not more than three business days prior to the date of such
letter, there was any change in the capital stock or any increase in
short-term indebtedness or long-term debt of the Company and its
consolidated subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any decrease in
consolidated net current assets, as compared with amounts shown on the
latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of
the latest income statement included in the Prospectus to the closing
date of the latest available income statement read by such accountants
there were any decreases, as compared with the corresponding period of
the previous year, in consolidated revenue or in the total or per share
amounts of net income, except in all cases set forth in clauses and
above for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Company and its subsidiaries subject to the
-12-
<PAGE> 13
internal controls of the Company's accounting system or are derived
directly from such records by analysis or computation) with the results
obtained from inquiries, a reading of such general accounting records
and other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery of
this Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "REGISTRATION STATEMENTS" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"PROSPECTUS" shall mean the prospectus included in the Registration Statements.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York time, on
the date of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if any)
is not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later date as
shall have been consented to by CSFBC. If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
the Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any development or
event involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as one enterprise which, in the judgment of a majority in
interest of the Underwriters including the Representatives, is material and
adverse and makes it impractical or inadvisable to proceed with completion of
the public offering or the sale of and payment for the Offered Securities; (ii)
any downgrading in the rating of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt securities
of the Company (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (iii) any material suspension or material limitation of trading in
securities generally on the New York Stock Exchange or any setting of minimum
prices for trading on such exchange,
-13-
<PAGE> 14
or any suspension of trading of any securities of the Company on any exchange or
in the over-the-counter market; (iv) any banking moratorium declared by U.S.
Federal or New York authorities; or (v) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war by
Congress or any other substantial national or international calamity or
emergency if, in the judgment of a majority in interest of the Underwriters
including the Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and payment for
the Offered Securities.
(d) The Representatives shall have received an opinion, dated
such Closing Date, of Hale and Dorr LLP, counsel for the Company, to the effect
that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus; and the Company is
duly qualified to do business as a foreign corporation in good standing
in __________, __________ and __________, which, to such counsel's
knowledge, are the only jurisdictions in which the Company owns or
leases real property;
(ii) The Offered Securities delivered on such Closing
Date and all other outstanding shares of the Common Stock of the
Company have been duly authorized and validly issued, are fully paid
and nonassessable and conform to the description thereof contained in
the Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Offered Securities under the Delaware
General Corporation Law statute, the Company's Certificate of
Incorporation or By-laws or, to such counsel's knowledge, any agreement
to which the Company is a party;
(iii) Except as described in the Prospectus, and
except for rights with respect to this offering which have been validly
waived, there are no contracts, agreements or understandings known to
such counsel between the Company and any person granting such person
the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act;
(iv) The Company is not and, after giving effect to
the offering and sale of the Offered Securities and the application of
the proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of 1940.
(v) No consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court is
required to be obtained or made by the Company for the consummation of
the transactions contemplated by this Agreement in connection with the
-14-
<PAGE> 15
issuance or sale of the Offered Securities by the Company, except such
as have been obtained and made under the Act and such as may be
required under state securities laws;
(vi) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities will not
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, (a) any statute, any rule or regulation,
(b) any order of any governmental agency or body or any court having
jurisdiction over the Company or any subsidiary of the Company of which
such counsel has knowledge or any of their properties, (c) any
agreement or instrument to which the Company or any such subsidiary is
a party or by which the Company or any such subsidiary is bound or to
which any of the properties of the Company or any such subsidiary is
subject and which is listed as an exhibit to the Registration Statement
or which such counsel has knowledge of or (d) the charter or by-laws of
the Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(vii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed and
became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was included
in the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and such counsel do not know of any
legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as
required or of any contracts or documents of a character required to be
described in a Registration Statement or the Prospectus or to be filed
as exhibits to a Registration Statement which are not described and
filed as required; it being understood that such counsel need express
no opinion as to the financial statements or other financial data
contained in the Registration Statements or the Prospectus; and
(viii) This Agreement has been duly authorized,
executed and delivered by the Company.
Such counsel shall also include a statement in its opinion to the
effect that, based on its participation in conferences with officers and
representatives of the Company, counsel for the Underwriters and the independent
accountants of the Company, no facts have come to its attention which have
caused it to
-15-
<PAGE> 16
believe that the Registration Statement, as of its Effective Date (but after
giving effect to changes incorporated pursuant to Rule 430A under the Act),
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading (except that such counsel need express no such
view with respect to the financial statements, including the notes and schedules
thereto, or any other financial or accounting data included therein), or that
the Prospectus, as of the date it was filed with the Commission pursuant to Rule
424(b) under the Act or as of the Closing Date, contained any untrue statement
of a material fact or omitted to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (except that such counsel need express no such view with
respect to the financial statements, including the notes and schedules thereto,
or any other financial or accounting data included therein).
(e) The Representatives shall have received from Katten Muchin
& Zavis, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the validity of
the Offered Securities delivered on such Closing Date, the Registration
Statements, the Prospectus and other related matters as the Representatives may
require, and the Company shall have furnished to such counsel such documents as
they request for the purpose of enabling them to pass upon such matters.
(f) The Representatives shall have received a certificate,
dated such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state on behalf of
the Company that: the representations and warranties of the Company in this
Agreement are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder at
or prior to such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and, to their knowledge, no proceedings
for that purpose have been instituted or are contemplated by the Commission; the
Additional Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b),
including payment of the applicable filing fee in accordance with Rule 111(a) or
(b) under the Act, prior to the time the Prospectus was printed and distributed
to any Underwriter; and, subsequent to the dates of the most recent financial
statements in the Prospectus, there has been no material adverse change, nor any
development or event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated
such Closing Date, of Arthur Andersen LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to such Closing
Date for the purposes of this subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive
-16-
<PAGE> 17
on behalf of the Underwriters compliance with any conditions to the obligations
of the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below; and provided, further,
that with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus if the Company had previously furnished copies thereof to such
Underwriter.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (the "DESIGNATED ENTITIES"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material (A)
prepared by the Company or (B) prepared with the consent of the Company and
which material, as prepared by such party other than the Company, was approved
by the Company, for distribution to Participants in connection with the Directed
Share Program or caused by 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; (ii) caused by the failure of any Participant to pay for
and accept delivery of Directed Shares that the Participant agreed to purchase;
or (iii) related to, arising out of, or in connection with the Directed Share
Program, other than
-17-
<PAGE> 18
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company, its directors and officers and each person, if
any who controls the Company within the meaning of Section 15 of the Act,
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the fourth
paragraph under the caption "Underwriting" and the information contained in the
sixth, seventh, eighth and fifteenth paragraphs under the caption
"Underwriting."
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to the
last paragraph in Section 7 (a) hereof in respect of such action or proceeding,
then in addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses of not
more than one separate firm (in addition to any local counsel) for the
Designated Underwriter for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control the Designated Underwriter within the meaning of either Section 15
of the Act of Section 20 of the Exchange Act. No indemnifying or indemnified
party shall, without the prior written
-18-
<PAGE> 19
consent of the other party, effect any settlement of any pending or threatened
action in respect of which such other party is or could have been a party and
indemnity could have been sought hereunder by such other party, unless such
settlement (i) includes an unconditional release of such other party from all
liability on any claims that are the subject matter of such action and (ii) does
not include a statement as to, or an admission of, fault, culpability or a
failure to act by or on behalf of such other party.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
-19-
<PAGE> 20
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives , c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at 20 Industrial Drive,
Nashua, New Hampshire, Attention: President;
-20-
<PAGE> 21
provided, however, that any notice to an Underwriter pursuant to Section 7 will
be mailed, delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
-21-
<PAGE> 22
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
SKILLSOFT CORPORATION
By:___________________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.
CREDIT SUISSE FIRST BOSTON CORPORATION
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By CREDIT SUISSE FIRST BOSTON CORPORATION
By ____________________________________
Name:
Title:
-22-
<PAGE> 23
SCHEDULE A
Number of
Firm Securities
---------------
Credit Suisse First Boston Corporation
Banc of America Securities LLC
Thomas Weisel Partners LLC
-----------------
Total $
================
-23-
<PAGE> 1
Exhibit 3.02
FORM OF
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SKILLSOFT CORPORATION
Pursuant to Section 242 of the General Corporation Law of
the State of Delaware
-----------------------------------------------------------
SkillSoft Corporation (hereinafter called the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: At a meeting of the Board of Directors of the Corporation a
resolution was duly adopted, pursuant to Section 242 of the General Corporation
Law of the State of Delaware, proposing and declaring advisable the following
amendment to the Amended and Restated Certificate of Incorporation of the
Corporation:
RESOLVED: That section A of Article FOURTH of the Amended and
Restated Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety
and the following is inserted in lieu thereof:
"A. Classes of Stock: The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 66,909,508 shares,
consisting of (i) 50,000,000 shares of Common Stock, $.001 par value per share
("Common Stock"), and (ii) 16,909,508 shares of Preferred Stock, $.001 par value
per share ("Preferred Stock"), of which 4,000,000 shares shall be designated as
Series A Preferred Stock, 4,761,905 shall be designated as Series B Preferred
Stock, 3,147,603 shall be designated as Series C Preferred Stock and 5,000,000
shares shall initially be undesignated.
Upon the filing of this Certificate of Amendment to Certificate of
Incorporation, any outstanding share of Class A or Class B common stock will be
automatically converted into one share of common stock.
<PAGE> 2
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
RESOLVED: That sections C, D and E of Article FOURTH of the
Amended and Restated Certificate of Incorporation of
the Corporation be and hereby are deleted in their
entirety and the following is inserted in lieu
thereof:
C. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock."
RESOLVED: That Articles SEVENTH, EIGHTH, NINTH and TENTH of the
Amended and Restated Certificate of Incorporation are
hereby deleted in their entirety and the following is
inserted in lieu thereof:
-2-
<PAGE> 3
"SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT
OF THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
-3-
<PAGE> 4
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which
-4-
<PAGE> 5
indemnity will or could be sought. With respect to any action, suit, proceeding
or investigation of which the Corporation is so notified, the Corporation will
be entitled to participate therein at its own expense and/or to assume the
defense thereof at its own expense, with legal counsel reasonably acceptable to
the Indemnitee. After notice from the Corporation to the Indemnitee of its
election so to assume such defense, the Corporation shall not be liable to the
Indemnitee for any legal or other expenses subsequently incurred by the
Indemnitee in connection with such claim, other than as provided below in this
Section 4. The Indemnitee shall have the right to employ his own counsel in
connection with such claim, but the fees and expenses of such counsel incurred
after notice from the Corporation of its assumption of the defense thereof shall
be at the expense of the Indemnitee unless (i) the employment of counsel by the
Indemnitee has been authorized by the Corporation, (ii) counsel to the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article. The Corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
PROVIDED, HOWEVER, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article; and FURTHER PROVIDED that no such advancement of expenses shall be
made if it is determined that (i) the Indemnitee did not act in good faith and
in a manner he reasonably believes to be in, or not opposed to, the best
interests of the Corporation, or (ii) with respect to any criminal action or
proceeding, the Indemnitee had reasonable cause to believe his conduct was
unlawful. Such undertaking shall be accepted without reference to the financial
ability of the Indemnitee to make such repayment.
-5-
<PAGE> 6
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1, 2 or 5, as the
case may be. Such determination shall be made in each instance (a) by a majority
vote of the directors of the Corporation consisting of persons who are not at
that time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) by a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c), if there are no disinterested directors, or if
disinterested directors so direct, by independent legal counsel (who may, to the
extent permitted by law, be regular legal counsel to the Corporation) in a
written opinion, or (d) by the stockholders of the Corporation.
7. REMEDIES. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit,
-6-
<PAGE> 7
proceeding or investigation arising out of or relating to any actions,
transactions or facts occurring prior to the final adoption of such amendment,
termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising
-7-
<PAGE> 8
out of or relating to any actions, transactions or facts occurring prior to the
date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. Except as otherwise provided herein, the Corporation reserves
the right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. NUMBER OF DIRECTORS; ELECTION OF DIRECTORS. The number of directors
of the Corporation shall not be less than three. The exact number of directors
within the limitations specified in the preceding sentence shall be fixed from
time to time by, or in the manner provided in, the Corporation's By-Laws.
Election of directors need not be by written ballot, except as and to the extent
provided in the By-Laws of the Corporation.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-
-8-
<PAGE> 9
third, the extra director shall be a member of Class I, and if such fraction is
two-thirds, one of the extra directors shall be a member of Class I and one of
the extra directors shall be a member of Class II, unless otherwise provided
from time to time by resolution adopted by the Board of Directors.
3. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which such director was elected; PROVIDED, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting in 2000; each
initial director in Class II shall serve for a term ending on the date of the
annual meeting in 2001; and each initial director in Class III shall serve for a
term ending on the date of the annual meeting in 2002; and PROVIDED FURTHER,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
4. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member (subject to Section 3 above) and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class.
5. QUORUM; ACTION AT MEETING. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the number
of directors then in office constitute a quorum. If at any meeting of the Board
of Directors there shall be less than such a quorum, a majority of those present
may adjourn the meeting from time to time. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors unless a greater
number is required by law, by the By-Laws of the Corporation or by this
Certificate of Incorporation.
6. REMOVAL. Directors of the Corporation may be removed by the
stockholders only for cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (662/3%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors.
-9-
<PAGE> 10
7. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
8. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
9. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(662/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TENTH.
ELEVENTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(662/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
ELEVENTH.
TWELFTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the President or the Board of
Directors. Notwithstanding any other provision of law, this Certificate of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (662/3%) of the votes which
all the stockholders would be entitled to cast in any annual election of
directors or class of directors shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article TWELFTH.
THIRTEENTH: In furtherance and not in limitation of the powers
conferred upon it by the laws of the State of Delaware, the Board of Directors
shall have the
-10-
<PAGE> 11
power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of a majority of the directors present at any regular or
special meeting of the Board of Directors at which a quorum is present shall be
required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(662/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors. Notwithstanding any
other provision of law, this Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (662/3%) of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors shall
be required to amend or repeal, or to adopt any provision inconsistent with,
this Article THIRTEENTH."
-11-
<PAGE> 12
SECOND: The stockholders of the Corporation have duly adopted said
amendment in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its Chairman of the Board, President and Chief
Executive Officer this ____ day of _________, 1999.
SKILLSOFT CORPORATION
By:___________________________________
Charles E. Moran
Chairman of the Board, President and
Chief Executive Officer
-12-
<PAGE> 1
Exhibit 3.03
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SKILLSOFT CORPORATION
SkillSoft Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on October 15, 1997.
2. At a duly called meeting of the Board of Directors of the
Corporation at which a quorum was present at all times, a resolution was duly
adopted, pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, setting forth an Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation duly
approved said proposed Amended and Restated Certificate of Incorporation in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware. The resolution setting forth the Amended and Restated Certificate
of Incorporation is as follows:
RESOLVED: That the Amended and Restated Certificate of Incorporation of
the Corporation, as amended to date, be and hereby is further
amended and restated in its entirety so that the same shall
read as follows:
FIRST. The name of the Corporation is:
SkillSoft Corporation
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
<PAGE> 2
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 55,000,000 shares, consisting of
(i) 50,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.001 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
2
<PAGE> 3
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
FIFTH. The Corporation shall have a 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
3
<PAGE> 4
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 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. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT
OF THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe
4
<PAGE> 5
that his conduct was unlawful. Notwithstanding anything to the contrary in this
Article, except as set forth in Section 7 below, the Corporation shall not
indemnify an Indemnitee seeking indemnification in connection with a proceeding
(or part thereof) initiated by the Indemnitee unless the initiation thereof was
approved by the Board of Directors of the Corporation. Notwithstanding anything
to the contrary in this Article, the Corporation shall not indemnify an
Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of
insurance, and in the event the Corporation makes any indemnification payments
to an Indemnitee and such Indemnitee is subsequently reimbursed from the
proceeds of insurance, such Indemnitee shall promptly refund such
indemnification payments to the Corporation to the extent of such insurance
reimbursement.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
5
<PAGE> 6
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
PROVIDED, HOWEVER, that the payment of such expenses
6
<PAGE> 7
incurred by an Indemnitee in advance of the final disposition of such matter
shall be made only upon receipt of an undertaking by or on behalf of the
Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Corporation as authorized in this Article; and FURTHER PROVIDED that no
such advancement of expenses shall be made if it is determined that (i) the
Indemnitee did not act in good faith and in a manner he reasonably believes to
be in, or not opposed to, the best interests of the Corporation, or (ii) with
respect to any criminal action or proceeding, the Indemnitee had reasonable
cause to believe his conduct was unlawful. Such undertaking shall be accepted
without reference to the financial ability of the Indemnitee to make such
repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1, 2 or 5, as the
case may be. Such determination shall be made in each instance (a) by a majority
vote of the directors of the Corporation consisting of persons who are not at
that time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) by a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c), if there are no disinterested directors, or if
disinterested directors so direct, by independent legal counsel (who may, to the
extent permitted by law, be regular legal counsel to the Corporation) in a
written opinion, or (d) by the stockholders of the Corporation.
7. REMEDIES. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee
7
<PAGE> 8
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not met the applicable
standard of conduct. The Indemnitee's expenses (including attorneys' fees)
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise
8
<PAGE> 9
(including any employee benefit plan) against any expense, liability or loss
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the General Corporation Law of
Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. Except as otherwise provided herein, the Corporation reserves
the right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. NUMBER OF DIRECTORS; ELECTION OF DIRECTORS. The number of directors
of the Corporation shall not be less than three. The exact number of directors
within the
9
<PAGE> 10
limitations specified in the preceding sentence shall be fixed from time to time
by, or in the manner provided in, the Corporation's By-Laws. Election of
directors need not be by written ballot, except as and to the extent provided in
the By-Laws of the Corporation.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which such director was elected; PROVIDED, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting in 2000; each
initial director in Class II shall serve for a term ending on the date of the
annual meeting in 2001; and each initial director in Class III shall serve for a
term ending on the date of the annual meeting in 2002; and PROVIDED FURTHER,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
4. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member (subject to Section 3 above) and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class.
5. QUORUM; ACTION AT MEETING. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the number
of directors then in office constitute a quorum. If at any meeting of the Board
of Directors there shall be less than such a quorum, a majority of those present
may adjourn the meeting from time to time. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors
10
<PAGE> 11
unless a greater number is required by law, by the By-Laws of the Corporation or
by this Certificate of Incorporation.
6. REMOVAL. Directors of the Corporation may be removed by the
stockholders only for cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (662/3%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors.
7. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
8. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
9. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(662/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TENTH.
ELEVENTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(662/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
ELEVENTH.
TWELFTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the President or the Board of
Directors. Notwithstanding any other provision of law, this Certificate of
Incorporation or the
11
<PAGE> 12
By-Laws of the Corporation, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (662/3%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article TWELFTH.
THIRTEENTH: In furtherance and not in limitation of the powers
conferred upon it by the laws of the State of Delaware, the Board of Directors
shall have the power to adopt, amend, alter or repeal the Corporation's By-Laws.
The affirmative vote of a majority of the directors present at any regular or
special meeting of the Board of Directors at which a quorum is present shall be
required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(662/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors. Notwithstanding any
other provision of law, this Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (662/3%) of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors shall
be required to amend or repeal, or to adopt any provision inconsistent with,
this Article THIRTEENTH.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Incorporation to be signed by its
Chairman of the Board, President and Chief Executive Officer this _____ day of
_________, 1999.
SKILLSOFT CORPORATION
By:_______________________________________
Charles E. Moran
Chairman of the Board, President
Chief Executive Officer
12
<PAGE> 1
Exhibit 3.04
AMENDED AND RESTATED BY-LAWS
OF
SKILLSOFT CORPORATION
ARTICLE I. - STOCKHOLDERS
1. PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors, the Chairman of the Board or the
President or, if not so designated, at the registered office of the corporation.
2. ANNUAL MEETING. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the Chairman of the Board or the President (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors, the Chairman of the Board or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as is convenient. If no annual meeting
is held in accordance with the foregoing provisions, a special meeting may be
held in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
3. SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time only by the Chairman of the Board, the President or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
4. NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in
<PAGE> 2
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
5. VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
6. QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
7. ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
8. VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law, the Certificate of Incorporation or these By-Laws. Each stockholder of
record entitled to vote at a meeting of stockholders may vote in person or may
authorize another person or persons to vote or act for him by proxy executed in
writing (or in such other manner as permitted under Delaware law) by the
stockholder or his authorized agent and delivered to the Secretary of the
corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period.
-2-
<PAGE> 3
9. ACTION AT MEETING. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of that
class of stock representing a majority of the votes cast on a matter) shall
decide any matter to be voted upon by the stockholders at such meeting, except
when a different vote is required by express provision of law, the Certificate
of Incorporation or these By-Laws. Any election by stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to vote
at the election.
10. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors (except for directors elected to fill vacancies, as provided in
Article II, Section 8). Nomination for election to the Board of Directors of the
corporation at a meeting of stockholders may be made (i) by or at the direction
of the Board of Directors or (ii) by any stockholder of the corporation entitled
to vote for the election of directors at such meeting who complies with the
notice procedures set forth in this Section 10.
To be timely, a stockholder's notice must be received by the Secretary
at the principal executive offices of the corporation as follows: (a) in the
case of an election of directors at an annual meeting of stockholders, not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that (i) in the event that
the date of the annual meeting is advanced by more than 20 days, or delayed by
more than 60 days, from such anniversary date, to be timely, a stockholder's
notice must be so received not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of (A) the 60th
day prior to such annual meeting and (B) the 10th day following the day on which
notice of the date of such annual meeting was mailed or public disclosure of the
date of such annual meeting was made, whichever first occurs, or (ii) with
respect to the annual meeting of stockholders of the corporation to be held in
the year 2000, to be timely, a stockholder's notice must be so received not
earlier than the 90th day prior to such annual meeting and not later than the
close of business on the 10th day following the day on which notice of the date
of such annual meeting was mailed or public disclosure of the date of such
annual meeting was made, whichever first occurs; or (b) in the case of an
election of directors at a special meeting of stockholders, not earlier than the
ninetieth day prior to such special meeting and not later than the close of
business on the later of (A) the sixtieth day prior to such special meeting and
(B) the 10th day following the day on which notice of the date of such special
meeting was mailed or public disclosure of the date of such special meeting was
made, whichever first occurs.
-3-
<PAGE> 4
The stockholder's notice to the Secretary shall set forth (a) as to
each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended; (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the corporation's books, of such stockholder
and (ii) the class and number of shares of the corporation which are
beneficially owned by such stockholder; and (c) as to the beneficial owner, if
any, on whose behalf the nomination is being made (i) the name and address of
such beneficial owner and (ii) the class and number of shares of the corporation
which are beneficially owned by such person. In addition, to be effective, the
stockholder's notice must be accompanied by the written consent of the proposed
nominee to serve as a director if elected. The corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the corporation to determine the eligibility of such proposed nominee to
serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Nothing in the foregoing provision shall obligate the corporation or
the Board of Directors to include in any proxy statement or other stockholder
communication distributed on behalf of the corporation or the Board of Directors
information with respect to any nominee for directors submitted by a
stockholder.
11. NOTICE OF BUSINESS AT ANNUAL MEETINGS. At any annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, (i)
if such business relates to the election of directors of the corporation, the
procedures in Section 10 of Article I must be complied with and (ii) if such
business relates to any other matter, the stockholder must have given timely
notice thereof in writing to the Secretary in accordance with the procedures set
forth in this Section 11.
-4-
<PAGE> 5
To be timely, a stockholder's notice must be received by the Secretary
at the principal executive offices of the corporation not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that (i) in the event that the date of the annual
meeting is advanced by more than 20 days, or delayed by more than 60 days, from
such anniversary date, to be timely, a stockholder's notice must be so received
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of (A) the 60th day prior to such annual
meeting and (B) the 10th day following the day on which notice of the date of
such annual meeting was mailed or public disclosure of the date of such annual
meeting was made, whichever first occurs, or (ii) with respect to the annual
meeting of stockholders of the corporation to be held in the year 2000, to be
timely, a stockholder's notice must be so received not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of (A) the 60th day prior to such annual meeting and (B) the 10th day
following the day on which notice of the date of such annual meeting was mailed
or public disclosure of the date of such annual meeting was made, whichever
first occurs.
The stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder and beneficial
owner, if any, and (d) any material interest of the stockholder or such
beneficial owner, if any, in such business. Notwithstanding anything in these
By-Laws to the contrary, no business shall be conducted at any annual meeting of
stockholders except in accordance with the procedures set forth in this Section
11; provided that any stockholder proposal which complies with Rule 14a- 8 of
the proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
-5-
<PAGE> 6
12. ACTION WITHOUT MEETING. Stockholders may not take any action by
written consent in lieu of a meeting.
13. CONDUCT OF MEETINGS. The Board of Directors of the corporation may
adopt by resolution such rules, regulations and procedures for the conduct of
any meeting of stockholders of the corporation as it shall deem appropriate.
Except to the extent inconsistent with such rules, regulations and procedures as
adopted by the Board of Directors, the officer of the corporation presiding at
any meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such officer, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the officer of the corporation presiding at the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
corporation, their duly authorized and constituted proxies or such other persons
as shall be determined; (iv) restrictions on entry to the meeting after the time
fixed for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the officer of the corporation presiding at the
meeting, meetings of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure.
The officer of the corporation presiding at any meeting of stockholders
shall announce at the meeting when the polls for each matter to be voted upon at
the meeting will be closed. If no announcement is made, the polls shall be
deemed to have closed upon the final adjournment of the meeting. After the polls
close, no ballots, proxies or votes or any revocations or changes thereto may be
accepted.
ARTICLE II. - DIRECTORS
1. GENERAL POWERS. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2. NUMBER; ELECTION AND QUALIFICATION. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board
-6-
<PAGE> 7
of Directors, but in no event shall be less than three. The number of directors
may be decreased at any time and from time to time by a majority of the
directors then in office, but only to eliminate vacancies existing by reason of
the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
3. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
4. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which such director was elected; PROVIDED, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting of stockholders
in 2000; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2001, and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2002; and PROVIDED FURTHER, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member (subject to Section 4 above) and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third (1/3) of the
number of directors then in office constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a
-7-
<PAGE> 8
quorum, a majority of those present may adjourn the meeting from time to time.
Every act or decision done or made by a majority of the directors present at a
meeting duly held at which a quorum is present shall be regarded as the act of
the Board of Directors unless a greater number is required by law, by the
Certificate of Incorporation or these By-Laws.
7. REMOVAL. Directors of the corporation may be removed by the
stockholders only for cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors.
8. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the Chairman of the
Board or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
10. REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
11. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
12. NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting,
-8-
<PAGE> 9
(ii) by sending a telegram, telecopy, telex or electronic mail, or delivering
written notice by hand, to his last known business, home or electronic mail
address at least 24 hours in advance of the meeting, or (iii) by mailing written
notice to his last known business or home address at least 72 hours in advance
of the meeting. A notice or waiver of notice of a meeting of the Board of
Directors need not specify the purposes of the meeting.
13. MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
14. ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
15. COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-Laws for the Board of Directors.
-9-
<PAGE> 10
16. COMPENSATION OF DIRECTORS. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE III. - OFFICERS
1. ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
2. ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3. QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
4. TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
5. RESIGNATION AND REMOVAL. Any officer may resign by delivering his or
her written resignation to the corporation at its principal office or to the
Chairman of the Board, President or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of
-10-
<PAGE> 11
such removal, whether his compensation be by the month or by the year or
otherwise, unless such compensation is expressly provided in a duly authorized
written agreement with the corporation.
6. VACANCIES. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
7. CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. Unless otherwise provided by the
Board of Directors, he shall preside at all meetings of the stockholders, and if
he is a director, at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him or her by
the Board of Directors. The person designated as the Chief Executive Officer of
the Company shall, subject to the direction of the Board of Directors, have
general charge and supervision of the business of the corporation.
8. PRESIDENT. Unless the Board of Directors has designated the Chairman
of the Board or another officer as Chief Executive Officer, the President shall
be the Chief Executive Officer of the corporation. The President shall perform
such other duties and shall have such other powers as the Chief Executive
Officer or the Board of Directors may from time to time prescribe.
9. VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the Chief Executive Officer, then, in the order determined by the
Board of Directors, the President (if he is not the Chief Executive Officer) and
the Vice President (or if there shall be more than one, the Vice Presidents)
shall perform the duties of the Chief Executive Officer and when so performing
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. The Board of Directors may assign to any Vice President
the title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
-11-
<PAGE> 12
10. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the secretary, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or the Secretary
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Secretary, the Assistant Secretary (or if there shall be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
11. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him or her by the Board of Directors or the Chief Executive Officer. In
addition, the Treasurer shall perform such duties and have such powers as are
incident to the office of treasurer, including without limitation the duty and
power to keep and be responsible for all funds and securities of the
corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or the Treasurer
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
-12-
<PAGE> 13
12. SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE IV. - CAPITAL STOCK
1. ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
2. CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him or her in the corporation. Each such certificate shall be signed
by, or in the name of the corporation by, the Chairman or Vice Chairman, if any,
of the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
-13-
<PAGE> 14
3. TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4. LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
5. RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
-14-
<PAGE> 15
ARTICLE V. - GENERAL PROVISIONS
1. FISCAL YEAR. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of February of each year and end on the last day of January in each year.
2. CORPORATE SEAL. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
3. WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
4. VOTING OF SECURITIES. Except as the directors may otherwise
designate, the Chairman of the Board or Treasurer may waive notice of, and act
as, or appoint any person or persons to act as, proxy or attorney-in-fact for
this corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5. EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6. CERTIFICATE OF INCORPORATION. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Amended and
Restated Certificate of Incorporation of the corporation, as amended and in
effect from time to time.
7. TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of
-15-
<PAGE> 16
the Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
a. The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
b. The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
c. The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
8. SEVERABILITY. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
9. PRONOUNS. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE VI. - AMENDMENTS
These By-Laws may be altered, amended or repealed, in whole or in part,
or new By-Laws may be adopted by the Board of Directors or by the stockholders
as provided in the Certificate of Incorporation.
-16-
<PAGE> 1
<TABLE>
<CAPTION>
<S> <C>
-------------------------------- -------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: LISA MARTIN: 215-830-2155
680 BLAIR MILL ROAD PROOF OF OCTOBER 5, 1999
HORSHAM, PA 19044 SKILLSOFT
(215)657-3480 H 663715back
-------------------------------- -------------------------------------------------
SALES: D. BURNS 617-786-7600 OPERATOR EG
-------------------------------- -------------------------------------------------
ZIP NEW 7/SKILLSOFT/H63715 NEW
-------------------------------- -------------------------------------------------
</TABLE>
NOTE: LOGO IS FOR POSITION ONLY
[SKILLSOFT LOGO]
NUMBER SHARES
SKL
SKILLSOFT CORPORATION
COMMON STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 83066P 10 1
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001 EACH OF THE
COMMON STOCK OF
SkillSoft Corporation transferable upon the books of the Corporation in person
or by attorney upon surrender of this certificate duly endorsed or assigned.
This certificate and the shares represented hereby are subject to the laws of
the State of Delaware and to the Certificate of Incorporation and By-laws of the
Corporation as from time to time amended.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
IN WITNESS WHEREOF, SkillSoft Corporation has caused its facsimile
corporate seal and the facsimile signatures of its duly authorized officers to
be hereunto affixed.
Dated:
/s/ Thomas J. McDonald /s/ Charles E. Moran
SECRETARY PRESIDENT
SKILLSOFT CORPORATION
1997
DELAWARE
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
SKILLSOFT CORPORATION
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR SERIES OF
STOCK. A COPY OF THE PREFERENCES, POWERS, QUALIFICATIONS AND RIGHTS OF EACH
CLASS AND SERIES WILL BE FURNISHED BY THE CORPORATION UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ___________ Custodian _____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ____________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received ________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _______________________________
__________________________________________________
NOTICE THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCK-BROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<TABLE>
<CAPTION>
<S> <C>
-------------------------------- -------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: LISA MARTIN: 215-830-2155
680 BLAIR MILL ROAD PROOF OF OCTOBER 5, 1999
HORSHAM, PA 19044 SKILLSOFT
(215)657-3480 H 663715back
-------------------------------- -------------------------------------------------
SALES: D. BURNS: 617-786-7600 OPERATOR: EG
-------------------------------- -------------------------------------------------
ZIP NEW 7/SKILLSOFT/H63715 NEW
-------------------------------- -------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.02
SKILLSOFT CORPORATION
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE.
The purpose of this 1999 Non-Employee Director Stock Option Plan (the
"Plan") of Skillsoft Corporation (the "Company") is to encourage ownership in
the Company by non-employee directors of the Company whose services are
considered essential to the Company's future progress and to provide them with a
further incentive to remain as directors of the Company.
2. ADMINISTRATION.
The Board of Directors shall supervise and administer the Plan. All
questions concerning interpretation of the Plan or any options granted under it
shall be resolved by the Board of Directors and such resolution shall be final
and binding upon all persons having an interest in the Plan. The Board of
Directors may, to the full extent permitted by or consistent with applicable
laws or regulations, delegate any or all of its powers under the Plan to a
committee appointed by the Board of Directors, and if a committee is so
appointed, all references to the Board of Directors in the Plan shall mean and
relate to such committee.
3. PARTICIPATION IN THE PLAN.
Directors of the Company who are not employees of the Company or any
subsidiary of the Company ("non-employee directors") shall be eligible to
receive options under the Plan.
4. STOCK SUBJECT TO THE PLAN.
(a) The maximum number of shares of the Company's Common Stock, par
value $.001 per share ("Common Stock"), which may be issued under the Plan shall
be [240,000] shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares covered by the
unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
<PAGE> 2
(c) All options granted under the Plan shall be non-statutory options
not entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
(d) Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
5. TERMS, CONDITIONS AND FORM OF OPTIONS.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) AUTOMATIC OPTION GRANT DATE. Each person who first becomes a
non-employee director after the closing date (the "Closing Date") of the
Company's initial public offering of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, shall
automatically be granted an option to purchase 60,000 shares of Common Stock on
the date of his or her initial election to the Board of Directors. Each date of
grant of an option pursuant to this Section 5(a) is hereinafter referred to as
an "Option Grant Date."
(b) OPTION EXERCISE PRICE. The option exercise price per share for each
option granted under the Plan shall equal (i) the closing price on any national
securities exchange on which the Common Stock is listed, (ii) the closing price
of the Common Stock on the Nasdaq National Market or (iii) the average of the
closing bid and asked prices in the over-the-counter market, whichever is
applicable, as published in THE WALL STREET JOURNAL, on the Option Grant Date.
If no sales of Common Stock were made on the Option Grant Date, the price of the
Common Stock for purposes of clauses (i) and (ii) above shall be the reported
price for the next preceding day on which sales were made.
(c) TRANSFERABILITY OF OPTIONS. Except as the Board may otherwise
determine or provide in an option granted under the Plan, any option granted
under the Plan to an optionee shall not be transferable by the optionee other
than by will or the laws of descent and distribution, and shall be exercisable
during the optionee's lifetime only by the optionee or the optionee's guardian
or legal representative. References to an optionee, to the extent relevant in
the context, shall include references to authorized transferees.
(d) VESTING PERIOD.
(i) GENERAL. Each option granted under the Plan pursuant to
Section 5(a) above shall become exercisable in four equal annual installments
beginning on the
2
<PAGE> 3
first anniversary of the Option Grant Date; provided, however, that the optionee
is serving as a director of the Company on each such anniversary (it being
understood that a director whose term expires at an Annual Meeting of
Stockholders and who does not stand for re-election is deemed to be a director
on (but not following) the date of such Annual Meeting for the purposes of this
Section 5 if he or she continues to serve through the date of such Annual
Meeting).
(ii) ACCELERATION UPON A CHANGE IN CONTROL. Notwithstanding
the foregoing, each outstanding option granted under the Plan shall immediately
become exercisable in full upon the occurrence of Change in Control Event (as
defined in Section 8) with respect to the Company.
(iii) RIGHT TO RECEIVE RESTRICTED STOCK. Notwithstanding the
provisions of Section 5(d)(i) above, the Board shall have the authority to grant
options (including options granted pursuant to Section 5(a) above) which are
immediately exercisable subject to the Company=s right to repurchase any
unvested shares of stock acquired by the optionee on exercise of an option in
the event such optionee=s service as a director terminates for any reason.
(e) TERMINATION. Each option shall terminate, and may no longer be
exercised, on the earlier of (i) the date ten years after the Option Grant Date
of such option or (ii) the first anniversary of the date on which the optionee
ceases to serve as a director of the Company.
(f) EXERCISE PROCEDURE. An option may be exercised only by written
notice to the Company at its principal office accompanied by (i) payment in cash
or by certified or bank check of the full consideration for the shares as to
which they are exercised, (ii) delivery of outstanding shares of Common Stock
(which have been outstanding for at least six months) having a fair market value
on the last business day preceding the date of exercise equal to the option
exercise price, or (iii) an irrevocable undertaking by a creditworthy broker to
deliver promptly to the Company sufficient funds to pay the exercise price or
delivery of irrevocable instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price.
(g) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. An
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the
3
<PAGE> 4
option, they must do so within the term of the option as provided herein. Any
exercise by a representative shall be subject to the provisions of the Plan.
6. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain the optionee as a director for any period of time.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by his or her option
until the date of the issuance to him or her of a stock certificate therefor,
and no adjustment will be made for dividends or other rights (except as provided
in Section 7) for which the record date is prior to the date such certificate is
issued.
(c) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
7. ADJUSTMENT PROVISIONS FOR MERGERS, RECAPITALIZATIONS AND RELATED
TRANSACTIONS.
If, through or as a result of any merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other similar transaction, (i) the outstanding shares of
Common Stock are exchanged for a different number or kind of securities of the
Company or of another entity, or (ii) additional shares or new or different
shares or other securities of the Company or of another entity are distributed
with respect to such shares of Common Stock, the Board of Directors shall make
an appropriate and proportionate adjustment in (x) the maximum number and kind
of shares reserved for issuance under the Plan, (y) the
4
<PAGE> 5
number and kind of shares or other securities subject to then outstanding
options under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan (without changing the aggregate purchase
price for such options), to the end that each option shall be exercisable, for
the same aggregate exercise price, for such securities as such optionholder
would have held immediately following such event if he had exercised such option
immediately prior to such event. No fractional shares will be issued under the
Plan on account of any such adjustments.
8. DEFINITION OF "CHANGE IN CONTROL EVENT". A "Change in Control Event" shall
mean:
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership of any capital stock of the
Company after the date of adoption of this Plan by the Board
of Directors if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) 30% or more of either (x)
the then-outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (y) the combined
voting power of the then-outstanding securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); PROVIDED, HOWEVER,
that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change in Control Event:
(A) any acquisition directly from the Company or an
underwriter or agent of the Company (excluding an acquisition
pursuant to the exercise, conversion or exchange of any
security exercisable for, convertible into or exchangeable for
common stock or voting securities of the Company, unless the
Person exercising, converting or exchanging such security
acquired such security directly from the Company or an
underwriter or agent of the Company), (B) any acquisition by
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company, or (C) any acquisition by any corporation pursuant to
a Business Combination (as defined below) which complies with
clauses (x) and (y) of subsection (iii) of this definition; or
(b) such time as the Continuing Directors (as defined below) do
not constitute a majority of the Board (or, if applicable, the
Board of Directors
5
<PAGE> 6
of a successor corporation to the Company), where the term
"Continuing Director" means at any date a member of the Board
(x) who was a member of the Board on the date of the initial
adoption of this Plan by the Board or (y) who was nominated or
elected subsequent to such date by at least a majority of the
directors who were Continuing Directors at the time of such
nomination or election or whose election to the Board was
recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such
nomination or election; PROVIDED, HOWEVER, that there shall be
excluded from this clause (y) any individual whose initial
assumption of office occurred as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a
person other than the Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the
Company or a sale or other disposition of all or substantially
all of the assets of the Company (a "Business Combination"),
unless, immediately following such Business Combination, each
of the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 50% of the then-outstanding shares of
common stock and the combined voting power of the
then-outstanding securities entitled to vote generally in the
election of directors, respectively, of the resulting or
acquiring corporation in such Business Combination (which
shall include, without limitation, a corporation which as a
result of such transaction owns the Company or substantially
all of the Company's assets either directly or through one or
more subsidiaries) (such resulting or acquiring corporation is
referred to herein as the "Acquiring Corporation") in
substantially the same proportions as their ownership of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, respectively, immediately prior to such
Business Combination and (y) no Person (excluding the
Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by the Company or by the
Acquiring Corporation) beneficially owns, directly or
indirectly, 30% or more of the then-outstanding shares of
common stock of the Acquiring Corporation, or of the combined
voting power of the then-outstanding
6
<PAGE> 7
securities of such corporation entitled to vote generally in
the election of directors (except to the extent that such
ownership existed prior to the Business Combination).
9. TERMINATION AND AMENDMENT OF THE PLAN.
The Board of Directors may suspend or terminate the Plan or amend it in
any respect whatsoever.
10. NOTICE.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
11. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the internal laws of the State of Delaware (without regard
to any applicable conflicts of laws or principles).
12. EFFECTIVE DATE.
The Plan shall become effective on the date hereof.
Adopted by the Board of Directors on
September 8, 1999
Approved by the stockholders on
October 2, 1999
7
<PAGE> 1
EXHIBIT 10.09
LEASE
THIS INDENTURE OF LEASE dated as of this 18th day of February, 1998, by
and between FIVE N ASSOCIATES, a New Hampshire general partnership with a
principal place of business at 40 Temple Street, Nashua, Hillsborough County,
New Hampshire, (hereinafter called "Lessor"), and SkillSoft Corporation of 9
Chickadee Court, Bedford, New Hampshire (hereinafter called "Lessee").
WITNESSETH
SECTION 1
LEASED PREMISES
Lessor hereby leases to Lessee and the Lessee hereby leases from
Lessor, upon and subject to the terms and provisions of this Lease, a portion of
20 Industrial Park Drive, Nashua, New Hampshire (which portion is sometimes
hereinafter referred to as the "Leased Premises") containing 5,515 gross square
feet on the third floor and cross-hatched on Exhibit A annexed hereto and made a
part hereof.
The Leased Premises shall extend to the exterior faces of exterior
walls or to the building line where there is no wall, or the center line of
those walls separating said Premises from other Leased Premises in 20 Industrial
Park Drive, Nashua, New Hampshire, together with the appurtenances specifically
granted in this Lease, but reserving and excepting to Lessor the right to
install, maintain, use, repair and replace pipes, duct work, conduits, utility
lines and wires through hung ceiling space, column space and partitions, in or
beneath the floor slab, or above or below the Leased Premises, or other parts of
20 Industrial Park Drive, Nashua, New Hampshire, except that Lessor shall not
unreasonably interfere with or interrupt the business operations of Lessee
within the Leased Premises and except where necessary as determined by Lessor's
architect, no pipes, conduits, utility lines or wires installed by Lessor shall
be exposed in the office area of the Leased Premises.
SECTION 2
TERM OF LEASE
2.1 The term of this Lease shall be for a period of three (3)
years, which period shall commence March 1, 1998 and shall end on February 28,
2001.
2.2 In the event Lessee shall hold over after the expiration of
this term, such holding over shall not extend the term of this
1
<PAGE> 2
Lease, but shall create a month-to-month tenancy upon all the terms and
conditions of this Lease; provided, however, that during such holdover, monthly
rent during such holdover shall equal 150% of the monthly rent assessed for the
last month of the expired term.
SECTION 3
RENT
3.1 Lessee covenants and agrees to pay Lessor at the place
provided herein for the giving of notice to Lessor, as annual base rent for said
Premises the sum of Thirty Five Thousand Eight Hundred Forty-Seven Dollars and
Fifty Cents ($35,847.50) payable in monthly installments Two Thousand Nine
Hundred Eighty-Seven Dollars and Twenty-Nine Cents ($2,987.29) for each month.
Each monthly installment shall be paid in advance on the FIRST DAY of each and
every calendar month during the term hereof. If the term of this lease shall
begin on a day other than the 1st of a month, the Lessee shall pay a PRO RATA
portion of a month's rent on the day the term commences and thereafter the
Lessee shall pay a succeeding monthly installment on the 1st day of each
succeeding month. Under no circumstances shall Lessee be entitled to withhold
any rent due hereunder or setoff against the same on account of Lessor's
purported failure to perform any of its obligations hereunder.
3.2 Any payment by Lessee or acceptance by Lessor of a lesser
amount than shall be due from Lessee to Lessor shall be treated as a payment on
account. The acceptance by Lessor of a check or payment for a lesser amount with
an endorsement or statement thereon, or upon any letter accompanying such a
check or payment, that such lesser amount is payment in full, shall be given no
effect and Lessor may accept such check or payment without prejudice to any
other rights or remedies which Lessor may have against Lessee.
3.3 Lessee covenants and agrees to pay Lessor at the place
provided herein for the giving of notice to Lessor, as additional rent during
the term hereof Lessee's PRO RATA share, which is hereby defined and agreed as
being 19.626% of the charges, costs and expenses defined in paragraphs 6.3, 7.2,
10.1 and 19.1 of this Lease. Lessee shall pay Lessor such additional rent in
monthly installments coincidental with the monthly base rental payments as set
forth in paragraph 3.1 hereof. Lessee acknowledges that Lessor may adjust, once
every month, the amount of Lessee's monthly installments to cover any difference
between the actual charges, costs and expenses incurred by Lessor and the amount
of the monthly installments paid by Lessee. It is agreed that Lessee's
additional rent in monthly installments shall be One Thousand Six Hundred Eight
Dollars and Fifty-Four Cents ($1,608.54) until notification of further
adjustment in accordance with this Lease. In addition to the foregoing, Lessor
may make assessments for expenses incurred
2
<PAGE> 3
which are over and above the monthly installments paid by Lessee, for any period
during the term of this Lease.
3.4 If Lessee shall fail to make payment of any installment of
Base Rent or any Additional Rent after the date when such payment is due, Lessee
shall pay to Lessor, in addition to such installment of Base Rent or such
Additional Rent, as the case may be, as a late charge and as Additional Rent, a
sum equal to two (2%) percent per annum above the then current prime rate
charged by Bank of New Hampshire, Nashua, New Hampshire or its successor of the
amount unpaid computed from the date such payment was due to and including the
date of payment.
SECTION 4
SECURITY DEPOSIT
The Lessee hereby deposits the sum of Two Thousand Nine Hundred
Eighty-Seven Dollars and Twenty-Nine Cents ($2,987.29) with the Lessor, the
receipt of which is hereby acknowledged, as security for the full and faithful
performance by the Lessee of each and every term, covenant and condition of this
Lease. Lessee shall maintain the full amount of the security deposit throughout
the term of this Lease. In the event that the Lessee defaults with respect to
any terms, provisions, covenants and conditions of this Lease, including but not
limited to payment of any rentals, the Lessor may use, apply or retain the whole
or any part of the security so deposited for the payment of any such rentals in
default or for any such sums which Lessor may expend or be required to expend by
reason of the Lessee's default, including any damages or deficiency in the
reletting of the Demised Premises, whether such damages or deficiency may accrue
before or after summary proceedings or other reentry by the Lessor. In the event
that the Lessee shall fully and faithfully comply with all terms, provisions,
covenants and conditions of this Lease, the security or the balance thereof will
be returned to the Lessee after the time fixed as the expiration thereof. The
Lessee shall not be entitled to any interest on the security. In the absence of
evidence satisfactory to the Lessor of any assignment of the right to receive
this security, or the remaining balance thereof, the Lessor may return the
security to the original Lessee, regardless of one or more assignments of the
Lease itself.
Prior to the time when the Lessee shall be entitled to return of the
security deposit, the Lessor shall be entitled to intermingle such deposit with
its own funds and to use such funds for purposes as the Lessor may determine.
In the event of a bona fide sale, subject to this Lease, the Lessor
shall have the right to transfer the security deposit to the vendee for the
benefit of the Lessee, and the Lessor shall be considered released by the Lessee
from all liability for return of
3
<PAGE> 4
such sum, and the Lessee agrees to look to the new landlord solely for the
return of the security, and it is agreed that this apply to every transfer or
assignment made of the security to a new landlord.
SECTION 5
QUIET ENJOYMENT
Lessor shall put Lessee into possession of the Leased Premises at the
beginning of the term hereof, and Lessee, upon paying the rent and observing the
other covenants and conditions herein, upon its part to be observed, shall
peaceably and quietly hold and enjoy the Leased Premises.
SECTION 6
COMMON AREAS; MAINTENANCE THEREOF
6.1 Lessor hereby further grants and gives to Lessee, its
customers, business invitees, employees, agents and suppliers, the privilege
during the term of this Lease and any renewal thereof, in common with Lessor,
its successors, assigns and other tenants, and others, of using, for purposes of
ingress and egress and parking, the parking areas and ways developed and to be
developed by the Lessor on or about the Leased Premises, and serving 20
Industrial Park Drive, Nashua, New Hampshire of which the Leased Premises are a
part, provided, however:
A. No officers, employees or agents of Lessee shall park vehicles
of their own overnight on any portions of said parking areas unless verbal
approval is given by Lessor. Lessor agrees to provide suitable and adequate
parking facilities for Lessee's officers, employees or agents which are
reasonably accessible to the Leased Premises;
B. Said rights of ingress and egress and parking shall be subject
to all easements, rights and other claims of record;
C. Lessee shall not obstruct the use of the sidewalks adjacent
to the Leased Premises;
D. Lessee shall not conduct an auction, fire, bankruptcy, going
out of business or similar sale, in the Leased Premises without the prior
written approval of Lessor;
E. Lessee shall not deposit any garbage or refuse on the walkways
or other common areas and shall cause all garbage and refuse to be removed to
trash dumpsters provided by the Lessor;
F. Lessee shall not burn any trash on or near the Leased
4
<PAGE> 5
Premises or cause any offensive odors to be emitted from the Leased Premises;
G. Lessee shall not permit or cause to be used on the Leased
Premises any device such as a public address system, neon or excessively bright,
changing, flashing or flickering lights, or any similar devices, the effect of
which shall be visible or audible from the exterior of the Leased Premises;
H. Lessee shall conform to all reasonable rules established by
Lessor and uniformly applied by Lessor relative to the operation and use of 20
Industrial Park Drive, Nashua, New Hampshire;
I. Lessor reserves the right from time to time to close the
common areas in such manner as it shall deem necessary for the maintenance,
operation, replacement or expansion of 20 Industrial Park Drive, Nashua, New
Hampshire, or to prevent the acquisition of any rights by public or others with
respect thereto, and such interruption shall be done in a manner to reasonably
minimize any business interruption of the Lessee. Under the above circumstances
shall the Lessor not be liable for any interruption of the Lessee's business.
6.2 Lessor agrees to provide reasonably suitable area lighting for
the common areas of 20 Industrial Park Drive, Nashua, New Hampshire, maintenance
of pavement on all parking areas, maintenance of all utilities serving 20
Industrial Park Drive, Nashua, New Hampshire, and generally, all other services
in the nature of maintenance, repairs and/or renovations as are reasonably
required in order to maintain all common areas, and improvements, serving such
common areas, in 20 Industrial Park Drive, Nashua, New Hampshire as a whole.
6.3 Lessee shall pay to Lessor, as additional rent during the term
hereof and as set forth in paragraph 3.3 of this Lease, its PRO RATA share of
the operating costs of the Common Area. "Operating costs" shall mean the total
cost and expense incurred in operating, maintaining and managing 20 Industrial
Park Drive, Nashua, New Hampshire and the Common Area, including without
limitation, painting of the building, roof repair, gardening and landscaping,
planting, care of trees and shrubs, repairs, line painting (striping), lighting,
removal of snow, trash, rubbish and other refuse, sanitary control, sweeping,
cleaning, fixing potholes, resurfacing and sealing parking lot, depreciation of
machinery and equipment used in maintenance, and the cost of personnel to
implement such service,s including directing parking and policing the Common
Area.
5
<PAGE> 6
SECTION 7
CONDITION OF PREMISES; REPAIRS
7.1 Except as set forth below, Lessee shall accept the building,
improvements and any equipment or fixtures on or in the Leased Premises "as is"
and in their existing condition and agrees that no representation, statement or
warranty, express or implied, has been made by or on behalf of Lessor as to such
condition, or as to the use that may be made of such property in accordance with
all laws, statutes, requirements and permits.
7.2 Lessee shall pay to the Lessor, as additional rent during the
term hereof and set forth in paragraphs 3.3 of this Lease, its pro rata share of
the repair and maintenance costs performed by the Lessor on the heating, air
conditioning, electrical and plumbing systems of the Leased Premises and of the
Common Areas.
7.3 Lessor covenants and agrees that it will maintain in good
repair the exterior walls of the Leased Premises, the structural beams,
structural columns and other structural parts of the Leased Premises. Lessee
covenants and agrees that it will keep, during the term hereof, at its own cost
and expense, the interior of the Leased Premises, in as good condition as the
same was at the commencement of the term hereof, taking by eminent domain and
damage due to fire or casualty insured against excepted. Lessee also agrees to
replace, at its own cost and expense, all window glass of the same kind and
quality, taking by eminent domain and damage due to fire or other casualty
insured against excepted. Lessee further agrees to replace and/or repair, at its
own cost and expense, all light bulbs and lighting fixtures which are damaged,
broken or cease to function during the term hereof, with bulbs or fixtures of
the same kind and quality.
7.4 The Lessee shall not, without written consent of the Lessor,
store any materials, goods or equipment outside the Leased Premises.
7.5 The Lessee shall at its expense make any alterations or
changes in the leased premises which may be necessary to meet the regulations
and standards promulgated and established under the Occupational Safety and
Health Act of 1970.
7.6 With the exception of the removal of the interior wall which
shall be the Lessor's responsibility, during the term of this lease, the Lessee
shall be responsible for any repairs or alterations to the leased premises
deemed necessary by local, state or federal officials, in order to meet
compliance with any changes in local, state or federal regulations during the
term of this lease.
6
<PAGE> 7
7.7 During the term of this lease, in the event of a claim brought
under the Americans with Disabilities Act on the Leased Premises, exclusive of
the common area of which Lessee shall pay its pro rata share as described in
Section 6.3 of this Lease, Lessee shall be responsible for ensuring satisfaction
therewith.
SECTION 8
IMPROVEMENTS BY LESSEE
8.1 Lessee may, with the prior written approval of Lessor, make
such alterations, additions or improvements to the Leased Premises, excluding,
however, the exterior of the Leased Premises, as it shall deem necessary or
desirable; provided, however:
A. No such alteration, addition or improvement shall lessen the
fair market value of the Leased Premises;
B. Lessee shall not make any alterations to the structure of the
Leased Premises;
C. Any such alteration, addition or improvement shall be made in
accordance with previously prepared plans and specifications, and if the
estimated cost of such alteration, addition or improvement exceeds One Thousand
Dollars ($1,000.00) such plans and specifications shall have the written
approval of Lessor before any work thereon shall be commenced;
D. That prior to the commencement of work on any such alteration,
addition or improvement, Lessee shall procure, at its own cost and expense, all
necessary permits; furthermore, the plans and specifications covering the same
shall have been submitted to and approved by (i) all municipal or other
governmental departments or agencies having jurisdiction over the subject matter
thereof, and (ii) any mortgagee having an interest in or lien upon the Leased
Premises if required by the terms of the mortgage, it being understood that
Lessor will not unreasonably refuse to join in any application to any such
mortgagee to obtain such approval with respect to any alteration, addition or
improvement;
E. In carrying out all such alterations, additions and
improvements, Lessee agrees to comply with the standards, guidelines and
specifications imposed by all municipal, state and federal departments or other
governmental departments and agencies having jurisdiction over the same,
including without limitation, all building codes, all ADA codes and to construct
all improvements in a workmanlike manner;
F. That prior to the commencement of work on any such alteration,
addition or improvement, the Lessee shall have procured
7
<PAGE> 8
and delivered to Lessor the policy of Builder's Risk insurance hereinafter
referred to in Section 18 hereof or additional fire and extended coverage
insurance as required by Section 18 hereof whichever is applicable;
G. That Lessee shall pay the increased premiums, if any, for the
regular insurance coverage of the Leased Premises resulting from any additional
risk during the course of construction or installation of any such alteration,
addition or improvement;
H. Any such alteration, addition or improvement made by Lessee
pursuant to the terms hereof shall, at the expiration of the term hereof or at
the expiration of any renewal term, become and remain the property of Lessor,
provided, however, that Lessor may, at its option and upon notice to Lessee not
less than One Hundred Twenty (120) days prior to such expiration, require Lessee
to remove any such alterations, additions and improvements and to restore the
Leased Premises to their condition as at the beginning of the term hereof,
reasonable wear and tear, taking be eminent domain and damage due to fire or
other casualty insured against excepted.
SECTION 9
MACHINERY AND EQUIPMENT; TRADE FIXTURES
Lessee agrees that all machinery and equipment, and appurtenances
thereto, installed in the Leased Premises by it or by any employee, agent or
subcontractor of Lessee, or by any subtenant of Lessee, which cannot be removed
from the Leased Premises, as determined by Lessor in its sole discretion, shall
be and become part of the realty and shall be and become the property of Lessor
and shall not be removed from the Leased Premises without the written consent of
Lessor. Lessor agrees that (a) all machinery and equipment and appurtenances
thereto, installed in the Leased Premises by Lessee, or by any employee, agent
or subcontractor of Lessee, or by any subtenant of Lessee, which may be removed
from the Leased Premises without permanent and substantial damage to the Leased
Premises, as determined by Lessor in its sole discretion, and (b) all furniture,
furnishings and movable trade fixtures installed in the Leased Premises shall be
deemed to remain personal property and that all such machinery, equipment,
appurtenances, furniture, furnishings and movable trade fixtures of Lessee or of
any employee, agent or subcontractor of subtenant of Lessee, may be removed
prior to the expiration of this Lease or its earlier termination for any cause
herein provided for; but Lessee shall repair any damage occasioned by such
removal and shall restore the Leased Premises to their condition as at the
beginning of the term hereof, taking by eminent domain and damage due to fire or
other casualty insured against excepted. Any such property which may be removed
pursuant to the preceding sentence and which is not so
8
<PAGE> 9
removed prior to the expiration or earlier termination of this Lease may be
removed from the Leased Premises by Lessor and stored for the account of Lessee;
and if Lessee shall fail to reclaim such property within thirty (30) days
following such expiration or earlier termination of this Lease, such property
shall be deemed to have been abandoned by Lessee, and may be appropriated, sold,
destroyed or otherwise disposed of by Lessor without notice to Lessee and
without obligation to account therefor. Lessee shall pay to Lessor the cost
incurred by Lessor in removing, storing, selling, destroying or otherwise
disposing of any such property.
SECTION 10
UTILITIES
10.1 Lessee shall make arrangements for and shall pay when due all
charges for gas, electricity, heat, lighting, power, water and sewerage provided
to the Leased Premises and the Common Areas. Lessee shall pay to Lessor, as
additional rent during the term hereof and as set forth in paragraph 3.3 of this
Lease, Lessee's PRO RATA share of the charges for gas, electricity, heat,
lighting, power, water and sewerage, provided to the Leased Premises and Common
Areas Lessee also agrees to pay for its pro rata share of all changes and
improvements in said, water, sewerage, heat and electrical systems required by
governmental authorities having jurisdiction over said services, in the event
that there are changes in the current statutory requirements.
SECTION 11
USE OF PREMISES
11.1 Without the prior written consent of Lessor, Lessee agrees
that it will use the Leased Premises only as a software development facility and
for services and purposes reasonably incident thereto.
11.2 Lessee agrees and acknowledges that for itself, any subtenant
or any assignee, it shall neither occupy nor use the Leased Premises or permit
the same to be occupied or used for any business or use which, under the Zoning
Ordinances of the City of Nashua, New Hampshire, requires a number of parking
spaces which is greater than 19.626% percent of all the parking spaces provided
on the site of 20 Industrial Park Drive, Nashua, New Hampshire. The Lessee
agrees that for itself or any subtenant, it shall use no more than 19.626%
percent of all the parking spaces provided on the site of 20 Industrial Park
Drive, Nashua, New Hampshire.
9
<PAGE> 10
11.3 In its use of the Leased Premises, Lessee shall comply with
all statutes, ordinances and regulations applicable to the use thereof,
including, without limiting the generality of the foregoing, the Zoning
Ordinances of the City of Nashua, New Hampshire, as now in effect or as
hereafter amended, and comply with all reasonable insurance requirements. If in
the Lessee's use of the leased premises it engages in any action that would
increase the cost of any insurance on 20 Industrial Park Drive, Nashua, New
Hampshire possessed by the Lessor, the Lessee shall either pay for any increase
in the cost of such insurance or meet the necessary insurance requirements and
make the necessary improvements to eliminate the insurance cost increase.
11.4 Lessee shall not injure or deface, or commit waste with
respect to the Leased Premises nor occupy or use the Leased Premises, or permit
or suffer any part thereof to be occupied or used, for any unlawful or illegal
business, use or purpose, nor for any business, use or purpose deemed to be
disreputable or high-hazard, nor in such manner as to constitute a nuisance of
any kind, nor for any purpose in any manner in violation of any present or
future laws, rules, requirements, orders, directions, ordinances or regulations
of any governmental or lawful authority including Boards of Fire Underwriters.
Lessee shall, immediately upon the discovery of any such unlawful, illegal,
disreputable or high-hazard use, take, at its own cost and expense, all
necessary steps, legal and equitable, to compel the discontinuance of such use
and to oust and remove the subtenants, occupants or other persons guilty of such
unlawful, illegal, disreputable or high-hazard use.
11.5 Lessee agrees not to use the Leased Premises for the
generation, storage or treatment of hazardous waste, and hereby certifies that
his operations or other use of the Leased Premises will not involve same. For
purposes of this Lease, the term "hazardous waste" shall be defined by
cumulative reference to the following sources as amended from time to time: (1)
The Resource Conservation and Recovery Act of 1976, 42 USC Sections 901 et seq
(RCRA); (2) EPA Federal Regulations promulgated thereunder and codified in 40
C.F.R. Parts 260-265 and Parts 122-124; (3) New Hampshire R.S.A. ch 147 and
147-A; (4) New Hampshire Regulations promulgated thereunder by any agency or
department of state.
11.6 Lessee shall procure any licenses or permits required by any
use of the Leased Premises by Lessee.
SECTION 12
ASSIGNMENT; SUBLEASING
Lessee shall not, without prior written consent of Lessor, assign this
Lease or sublease the Leased Premises, in whole or in
10
<PAGE> 11
part. Any assignment or sublease to which Lessor consents in writing shall be on
the express terms and conditions of this Lease.
SECTION 13
ALL RISK INSURANCE
13.1 In addition to the rent heretofore reserved, Lessee shall pay
to Lessor, as additional rent during the term hereof and within ten (10) days
following presentation of invoices thereof, the Lessee's PRO RATA share, which
is hereby defined and agreed as being 19.626% of (a) the real property taxes
upon the land and/or building comprising 20 Industrial Park Drive, Nashua, New
Hampshire and (b) any assessment, betterment charge or other special levy
against or upon such land and building.
13.2 "Real estate taxes" shall mean all real estate taxes, sewer
taxes and any other charges made by a public authority which upon assessment or
failure of payment become a lien or liens upon the Leased Premises or any part
thereof, or upon any buildings or appurtenances thereto, or any parts thereof,
or which may become due and payable with respect thereto. Real estate taxes
shall not include any franchise, estate, inheritance, succession, capital levy
or transfer tax of Lessor or any income tax of Lessor.
13.3 Lessee shall automatically pay and discharge all taxes which
shall or may during the term of this Lease be charged, laid, levied or imposed
upon or become a lien upon the personal property of Lessee attached to or used
in connection with Lessee's business conducted on the Leased Premises. Nothing
herein contained shall require Lessee to pay any taxes on the rent reserved to
Lessor hereunder.
13.4 Lessee shall have the right to contest or review (in the name
of Lessee, or of Lessor, or both, as Lessee shall elect) by appropriate
proceedings which, if instituted, shall be conducted promptly at Lessee's own
expense free of all expense to Lessor, any tax, charge or other governmental
imposition aforementioned upon condition that before instituting any such
proceeding Lessee shall pay (under protest) such tax, charge or other
governmental imposition aforementioned, or furnish to Lessor a surety company
performance bond in a company acceptable to Lessor or other security
satisfactory to Lessor sufficient to cover the amount of the contested item or
items with interest for the period which such proceedings may reasonably be
expected to take and costs securing the payment of such contested item or items
and all interest and costs in connection therewith when finally determined.
Notwithstanding the furnishing of any such bond or security, Lessee shall pay
all such items before the date when the Leased Premises or any part thereof
would, under applicable law, be forfeited. Lessor shall timely file the annual
inventory required by Chapter
11
<PAGE> 12
74:7 of the Revised Statutes Annotated of New Hampshire, the filing of which, by
virtue of Chapter 76:16 of such Revised Statutes Annotated, is a condition
precedent to tax abatement.
13.5 Lessor, at its option, may, but shall not be obligated to,
contest or review by any appropriate proceedings, and at Lessor's expense, any
tax, charge or other governmental imposition aforementioned which shall not be
contested or reviewed as aforesaid by Lessee, and unless Lessee shall promptly
join with Lessor in such contest or review, Lessor shall be entitled to receive
and retain any refund payable by the taxing authorities with respect thereto.
The Lessor shall notify the Lessee promptly of the institution of any such
proceedings.
SECTION 14
MECHANIC'S LIEN
In the event of the filing in the Hillsborough County Registry of Deeds
of any notice of a builder's, supplier's or mechanic's lien on the Leased
Premises arising out of any work performed by or on behalf of Lessee, Lessee
shall cause without delay proper proceedings to be instituted to test the
validity of the lien claimed, and before the end of the term to discharge the
same by the posting of bond or otherwise; and during the pendency of any such
proceeding, Lessee shall completely defend and indemnify Lessor against any such
claim or lien and all costs of such proceedings wherein the validity of such
lien is contested by Lessee, and during the pendency of such proceeding such
lien may continue until disposition of such proceeding, and after disposition
thereof, Lessee shall cause said lien to be released and discharged.
SECTION 15
EMINENT DOMAIN
In the event that the Leased Premises shall be lawfully condemned or
taken by any public authority either in their entirety or in such proportion
that they are no longer suitable for the intended use by Lessee, this Lease
shall automatically terminate without further act of either party hereto on the
date when possession of the Leased Premises shall be taken by such public
authority, and each party hereto shall be relieved of any further obligation to
the other except that Lessee shall be liable for and shall promptly pay to
Lessor any rent or other payments due hereunder then in arrears or the Lessor
shall promptly rebate to Lessee a PRO RATA portion of any rent or other such
payments paid in advance. In the event the proportion of the Leased Premises so
condemned or taken is such that they are still suitable for the intended use by
Lessee, this Lease shall continue in effect in
12
<PAGE> 13
accordance with its terms and a portion of the rent and other payments due
hereunder shall abate equal to the proportion of the rental value of the Leased
Premises so condemned or taken. In either of the above events, the award for the
property so condemned or taken shall be payable solely to Lessor except that if
the property so condemned or taken includes in whole or in part (a) the land
thereon at the beginning of the term hereof and (b) machinery, equipment and
appurtenances constructed or installed thereon by Lessee at its expense after
the beginning of the term hereof which would have been removable by Lessee
pursuant to Section 21 hereof, then such award shall be apportioned between
Lessor and Lessee in accordance with the then relative values of the property
described in clause (a) and clause (b) above, so condemned or taken.
SECTION 16
LIABILITY
Except for injury or damage caused by the willful act of Lessor, its
servants or agents, Lessor shall not be liable for any injury or damage to any
person happening on or about the Leased Premises or for any injury or damage to
the Leased Premises or to any property of Lessee or to any property of any third
person, firm, association or corporation on or about the Leased Premises. The
Lessee shall, except for injury or damage caused as aforesaid, defend, indemnify
and save the Lessor harmless from and against any and all liability and damages,
costs and expenses, including reasonable attorney's fees, and from and against
any and all suits, claims and demands of any kind or nature whatsoever, by and
on behalf of any person, firm, association or corporation arising out of or
based upon any incident, occurrence, injury or damage which shall or may happen
on or about the Leased Premises and from and against any matter or thing growing
out of the condition, maintenance, repair, alteration, use, occupation or
operation of the Leased Premises or the installation of any property therein or
the removal of any property therefrom.
SECTION 17
LIABILITY INSURANCE
Lessee shall, from the date on which it takes possession of the Leased
Premises even if such date precedes the commencement of the term hereof and
throughout the term hereof procure and carry at its expense comprehensive
liability insurance on the Leased Premises with an insurance company authorized
to do business in New Hampshire and acceptable to Lessor. Such insurance shall
be carried in the name of and for the benefit of Lessee and Lessor; shall be
written on an "occurrence" basis; and shall provide coverage of at lease One
Million Dollars ($1,000,000) in case of death of or injury to one person, Two
Million Dollars ($2,000,000)
13
<PAGE> 14
in case of death of or injury to more than one person in the same occurrence,
and One Hundred Thousand Dollars ($100,000) in case of loss, destruction or
damage to property. If applicable, Lessee shall comply with the requirements of
the Boilers and Unfired Pressure Vessels Law (RSA 157-A), and in such event the
policy or policies referred to above shall contain an endorsement providing
pressure vessels insurance coverage and naming Lessor as an additional insured.
Lessee shall furnish to Lessor a certificate of such insurance which shall
provide that the insurance indicated therein shall not be cancelled without at
least ten (10) days' written notice to Lessor. At the end of the first term of
this Lease and every three (3) years thereafter, Lessee shall increase the
insurance coverages provided herein if requested to do so by Lessor to such
amounts which are then adequate to protect against increases in insurance awards
whether caused by inflation or otherwise. Lessee shall also maintain insurance
for all glass and all signs installed in the Leased Premises.
SECTION 18
BUILDER'S RISK INSURANCE
During any period or periods of construction by Lessee on the Leased
Premises, the construction of which (a) is of a type to which Builder's Risk
insurance is applicable and (b) requires the advance written approval of Lessor
pursuant to Section 8(F) hereof, Lessee shall obtain and maintain in effect
standard Builder's Risk insurance written on a completed value basis, including
extended coverage, and utilizing a maximum value at date of completion not less
than the greater of (a) the aggregate contract price or prices for the
construction of such facilities or (b) the amount which may be required by a
mortgagee which is financing such construction. Such insurance shall be obtained
from an insurance company authorized to do business in New Hampshire and
acceptable to Lessor, and there shall be furnished to Lessor a certificate of
such insurance which shall provide that the insurance indicated therein shall
not be cancelled without at least ten (10) days' written notice to Lessor. If
such construction by Lessee is of a type to which Builder's Risk insurance is
not applicable, Lessee shall provide the necessary additional coverage under the
policies referred to herein.
SECTION 19
SPECIAL FORM PROPERTY INSURANCE
19.1 Lessor shall procure and continue in force during the term
hereof Special Form Property insurance upon the facilities constructed, erected
or installed on the Leased Premises by Lessor on a full value, repair or
replacement basis. In accordance with
14
<PAGE> 15
paragraph 3.3 of this Lease, Lessee shall reimburse Lessor for Lessee's pro RATA
share of the premiums paid for such insurance as additional rent.
19.2 During the term hereof, Lessee shall procure and continue in
force insurance which contains all risk coverage on a full value, repair or
replacement basis upon machinery, equipment and appurtenances constructed ,
erected or installed on or in the Leased Premises by Lessee and which have or
may be the property of Lessor pursuant hereto. The policies evidencing such
insurance shall provide that loss, if any, payable thereunder shall be payable
to Lessor and/or Lessee and/or mortgagee of the Leased Premises as their
respective interests may appear, and all such policies together with evidence of
payment of the premiums thereon shall be delivered to Lessor and/or any such
mortgagee. All such policies shall be taken in such responsible companies
authorized to do business in New Hampshire as Lessor shall approve (which
approval shall not be unreasonably withheld) and shall be in form satisfactory
to the Lessor. Upon receipt of a copy of notice of cancellation of any insurance
which is the responsibility of Lessee hereunder, Lessor may pay the premiums
necessary to reinstate the same. The amount so paid shall constitute additional
rent payable by Lessee at the next rental payment date. Payment of premiums by
Lessor shall not be deemed a waiver or release by Lessor of the default by
Lessee in failing to pay the same or of any action which Lessor may take
hereunder as a result of such default. Lessee shall not violate, nor permit any
person, firm, association or corporation to violate, any of the terms,
conditions and provisions of such policies. In the event of loss, Lessor shall
promptly initiate action to effect a settlement with the insurer, Lessee shall
cooperate with Lessor and any mortgagee in connection with the proceeding and
collection of claims, and shall execute and deliver to Lessor such proofs of
loss, releases and other instruments as may be necessary to settle any such
claims and obtain the proceeds thereof, and in the event Lessee shall fail or
neglect so to cooperate or to execute and deliver any such instrument Lessor
may, as the agent or attorney in fact of Lessee, execute and deliver any such
instrument, and Lessee here by nominates and appoints Lessor the proper and
legal attorney in fact of Lessee for such purpose, hereby ratifying all that
Lessor may lawfully do as such attorney in fact.
19.3 If and to the extent permitted without prejudice to any rights
of Lessor under the applicable insurance policies, Lessee shall be held free and
harmless from liability for loss or damage to the Leased Premises by fire, the
extended coverage perils, sprinkler leakage, vandalism and malicious mischief if
and to the extent actually insured against, whether or not such loss or damage
be the result of the negligence of Lessee, its employees or agents. This
subsection does not impose any added obligation or expense upon Lessor nor
require that it carry any insurance of any kind and
15
<PAGE> 16
is to be construed only as a limitation upon the rights of the insurance
carriers to subrogation.
19.4 If and to the extent permitted without prejudice to any rights
of the Lessee under the applicable insurance policies, Lessor shall be held free
and harmless from liability for loss or damage to personal property of Lessee in
the Leased Premises by fire, the extended coverage perils, sprinkler leakage,
vandalism and malicious mischief if and to the extent actually insured against,
whether or not such loss or damage be the result of the negligence of Lessor,
their employees or agents. This subsection does not impose any added obligation
or expense upon Lessee nor require that it carry any insurance of any kind and
is to be construed only as a limitation upon the rights of the insurance
carriers to subrogation.
SECTION 20
DESTRUCTION OR DAMAGE
In the event that the Leased Premises shall be totally destroyed by
fire or other casualty insured against, or shall be so damaged that repairs and
restoration cannot, in the opinion of Lessor in its sole discretion, be
accomplished within a period of one hundred twenty (120) days from the date of
such destruction or damage, this Lease shall automatically terminate without
further act of either party hereto, and each party shall be relieved of any
further obligation to the other except for the rights and obligations of the
parties under Sections 18 and 19 hereof, and except that Lessee shall be liable
for and shall promptly pay Lessor any rent then in arrears or Lessor shall
promptly rebate to Lessee a PRO RATA portion of any rent paid in advance. In the
event such facilities shall be so damaged that repairs and restoration can be
accomplished within a period of one hundred twenty (120) days from the date of
such destruction or damage, this Lease shall continue in effect in accordance
with its terms; such repairs and restoration shall, unless otherwise agreed by
Lessor and Lessee, be performed as closely as practicable to the original
specifications (utilizing therefor the proceeds of the insurance applicable
thereto without any apportionment thereof for damages to the leasehold interest
created by this Indenture), and until such repairs and restoration have been
accomplished a portion of the rent shall abate equal to the proportion of the
Leased Premises rendered unusable by the damage. It is understood that Lessor's
obligation to restore, replace or rebuild such facilities shall not exceed in
amount the sum of the insurance proceeds paid to it and/or released to it by any
mortgagee with which settlement was made. Lessee agrees to execute and deliver
to Lessor all instruments and documents necessary to evidence the fact that the
right to such insurance proceeds is vested in Lessor. Lessor shall
16
<PAGE> 17
notify Lessee within fifteen (15) days of such casualties whether or not the
Lessor will repair the Leased Premises.
SECTION 21
REPOSSESSION BY LESSOR
At the expiration of this Lease or upon the earlier termination of this
Lease for any cause herein provided for, Lessee shall peaceably and quietly quit
the Leased Premises and deliver possession of the same to Lessor together in
good working condition and in a state of repair and readiness for the same use,
with the facilities thereon at the beginning of the term hereof and all
facilities constructed thereon by Lessee which are not removed pursuant to the
terms hereof and all machinery, equipment and appurtenances installed therein
which have become part of the Leased Premises, or which are not to be removed
pursuant to Section 9 hereof. Lessee covenants and agrees that at the time of
delivery of possession to Lessor at the expiration of this Lease any and all
machinery, equipment and appurtenances constructed or installed on or in the
Leased Premises by Lessee at its expense after the beginning of the term hereof
and which have become the property of Lessor pursuant to Section 9 hereof shall
be free and clear of any mortgage, lien, pledge or other encumbrance or charge.
SECTION 22
MORTGAGE LIEN
Lessee agrees that this Lease and all rights of Lessee hereunder are
and shall be subject and subordinate to the lien of (a) any mortgage or deed of
trust constituting a first lien on the Leased Premises, or any part thereof, at
the date hereof, and (b) the lien of any mortgage or deed of trust hereafter
executed to a person, bank, trust company, insurance company or other recognized
lending institution to provide permanent financing or refinancing of the
facilities on the Leased Premises, and (c) any renewal, modification,
consolidation or extension of any mortgage or deed of trust referred to in
clause (a) or (b), and Lessee shall, upon demand at any time or times, execute,
acknowledge and deliver to Lessor without any expense to the Lessor, any an all
instruments that may be necessary or proper to subordinate this Lease and all
rights of Lessee hereunder to the lien of any mortgage, deed of trust or other
instrument referred to in clause (b) or clause (c) of the preceding sentence;
provided, however, that the subordination of this Lease shall be conditioned
upon the execution and delivery by the mortgagee or trustee of an agreement (i)
that so long as Lessee is not in default under the terms of this Indenture the
mortgagee or trustee, or any person succeeding to the
17
<PAGE> 18
rights of the mortgagee or trustee, or any purchaser at a foreclosure sale under
said mortgage or deed of trust, shall not disturb the peaceful possession of
Lessee hereunder, and (ii) that the proceeds of insurance policies held by it
will be applied to the cost of repairs and restoration in those instances in
which Lessor is obligated to repair and restore pursuant to the provisions
hereof.
SECTION 23
DEFAULT
In the event (i) any installment of rent or additional rent shall not
be paid within ten (10) days after it's due date; or (ii) failure to remove snow
and ice from sidewalks, stairs and dock area adjacent to the Leased Premises for
more than 48 hours after such snow or ice appears; or (iii) Lessee defaults in
the performance or observance of any other covenant or condition in this
Indenture and such default remains unremedied for twenty (20) days after written
notice thereof has been given to Lessee by Lessor; or (iv) any warranty or
representation made by Lessee herein proves to be false or misleading; or (v)
Lessee makes an assignment for the benefit of creditors, is generally not paying
its debts as such debts become due, a custodian was appointed or took possession
of its assets other than a trustee, receiver or agent appointed or authorized to
take charge of less than substantially all of the property of Lessee for the
purpose of enforcing a lien against such property, commences any proceeding
relating to Lessee or any substantial part of its property arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction whether now or hereafter in effect, or there is commenced against
Lessee any such proceeding which remains undismissed for a period of sixty (60)
days, or any order approving the petition in any such proceeding is entered, or
Lessee by any act indicates its consent to, or acquiescence in, any such
proceeding or the appointment of any receiver or trustee for Lessee or any
substantial part of its property, or suffers any such receivership or
trusteeship to continue undischarged for a period of sixty (60) days, or any
party holding a security interest in any of Lessee's fixtures or personal
property of any nature whatsoever that are located on the Leased Premises
institutes or gives notice of foreclosure against any such property, then, in
any of such events, Lessor may immediately or at any time thereafter and without
demand or notice enter upon the Leased Premises or any part thereof in the name
of the whole and repossess the same as of Lessor's former estate and expel
Lessee and those claiming through or under Lessee and remove their effects
forcibly if necessary, without being deemed guilty of any manner of trespass and
without prejudice to any remedies which might otherwise be used for arrears of
rent or preceding breach of covenant, and upon such entry this Lease shall
terminate, and
18
<PAGE> 19
Lessee covenants that, in case of such termination or in case of termination
under the provisions of statute by reason of the default of Lessee, Lessee shall
remain and continue liable to Lessor in an amount equal to the total rent
reserved for the balance of the term plus all additional rent reserved for the
balance of the term hereof less the net amounts (after deducting the expenses of
repair, renovation or demolition) which Lessor realizes, or with due diligence
should have realized from the reletting of the Leased Premises, plus all costs
associated with the correction of the default or the termination of the Lease,
including Lessor's reasonable attorney's fees. As used in this Section, the term
"additional rent" means the value of all considerations other than rent agreed
to be paid or performed by Lessee hereunder, including, without limiting the
generality of the foregoing, taxes, assessments, maintenance charges and
insurance premiums. Lessor shall have the right from time to time to relet the
Leased Premises upon such terms as they may deem fit, and if a sufficient sum
shall not be thus realized to yield the net rent required under this Lease,
Lessee agrees to satisfy and pay all deficiencies as they may become due during
each month of the remaining term of this Lease. Nothing herein contained shall
be deemed to require Lessor to await the date whereon this Lease, or the term
hereof, would have expired had there been no default by Lessee, or no such
termination or cancellation. Lessee expressly waives service of any notice of
intention to reenter and waives any and all right to recover or regain
possession of the Leased Premises, or to reinstate or redeem this Lease as may
be permitted or provided for by or under any statute or law now or hereafter in
force and effect. The rights and remedies given to Lessor in this Lease are
distinct, separate and cumulative remedies, and no one of them, whether or not
exercised by Lessor, shall be deemed to be in exclusion of any of the others
herein or by law or equity provided. Nothing contained in this Section shall
limit or prejudice the right of Lessor to prove and obtain, in proceedings
involving the bankruptcy or insolvency of, or a composition with creditors by,
Lessee the maximum allowed by any statute or rule of law at the time in effect.
SECTION 24
ACCESS TO PREMISES
Lessor or its representatives shall have free access to the Leased
Premises at reasonable intervals during normal business hours for the purpose of
inspection, or for the purpose of showing the Premises to prospective purchasers
or tenants, or for the purpose of making repairs which Lessee is obligated to
make hereunder but has failed or refused to make. The preceding sentence does
not impose upon Lessor any obligation to make repairs. During the One Hundred
Twenty (120) days next preceding the expiration of this Lease, Lessor may keep
affixed to any
19
<PAGE> 20
suitable part of the outside of the building on the Leased Premises a notice
that the Leased Premises are for sale or rent.
SECTION 25
NOTICES
Any written notice, request or demand required or permitted by this
Indenture shall, until either party shall notify the other in writing of a
different address, be properly given if hand delivered or sent by certified or
registered first class mail, postage prepaid, and addressed as follows:
If to Lessor: FIVE N ASSOCIATES
40 Temple Street
Nashua, NH 03060
If to Lessee: SKILLSOFT CORPORATION
20 Industrial Park Drive
Nashua, NH 03062
SECTION 26
SIGNS; EXTERIOR APPEARANCE
Lessee may advertise its presence in the Leased Premises, provided,
however, that the signage shall conform to the ordinances of the City of Nashua
and shall be placed on the sign fronting the Everett Turnpike.
Lessor shall have the prior right to approve the signage to be placed by Lessee.
SECTION 27
OPTION TO RENEW
Provided Lessee be not at the time in default in the payment of the
rent or in the performance of any of its obligations hereunder, the Lessee, upon
not less than one hundred twenty (120) days notice in writing to Lessor, may
renew this Lease for one (1) additional term of three (3) years. Such renewal
shall be upon all of the terms and conditions of this Lease except that there
shall be no further option of renewal following the last renewal term and the
rent for the renewal term shall be as set forth in Section 28 hereof.
20
<PAGE> 21
SECTION 28
RENT FOR RENEWAL TERM
28.1 If the first option to renew shall be exercised, the base
monthly rent during such renewal term shall be an amount determined by
multiplying the monthly rent of Two Thousand Nine Hundred Eighty-Seven Dollars
and Twenty-Nine Cents ($2,987.29) by a fraction, the numerator of which shall be
the Price Index on the first of the month closest to the expiration of the
original term hereof, and the denominator of which shall be the Price Index as
of the month prior to the beginning of the term hereof; PROVIDED, HOWEVER, that
if such fraction is one or less the base monthly rent shall be Two Thousand Nine
Hundred Eighty-Seven Dollars and Twenty-Nine Cents ($2,987.29).
28.2 As used in this paragraph, the term "Price Index" means (i)
the "Consumers' Price Index - For all urban consumers, U.S. City Average, All
Items, (1982-84 = 100) (referred to as CPI-U)" published by the Bureau of Labor
Statistics of the United States Department of Labor, or (ii) if the publication
of such Consumers' Price Index shall be discontinued, the comparable index most
closely reflecting diminution of the real value of the base rent herein provided
for. In the event of a change in the base rent for the Price Index, the
numerator of the fraction referred to above, shall be appropriately adjusted to
reflect continued use of the 1982-84 base in the case of the Consumers' Price
Index or in the case of such comparable index, the continued use of the base
period in effect at the time of its adoption for use hereunder. At the request
of either party hereto, the other from time to time shall execute an appropriate
instrument supplemental to this Indenture evidencing the then current monthly
rent payable by the Lessee hereunder.
SECTION 29
SHORT FORM RECORDING
The parties covenant and agree that, if required by the applicable
statutes, there shall be recorded in the Hillsborough County Registry of Deeds a
notice of this Lease that complies in content and form with the New Hampshire
statutes, and that they will execute and deliver a Notice of Lease in such form
for such purpose. The parties further covenant and agree that, in the event of
termination, cancellation or assignment of this Lease prior to the expiration of
the term hereof, they will execute and deliver, in recordable form, an
instrument setting forth such termination, cancellation or assignment.
21
<PAGE> 22
SECTION 30
SUCCESSION
This Indenture shall be binding upon and inure to the benefit of the
heirs, executors, administrators, successors and permitted assigns of the
parties hereto.
SECTION 31
WAIVER
Any consent, express or implied, by Lessor to any breach by Lessee of
any covenant or condition of this Lease shall not constitute a waiver by the
Lessor of any prior or succeeding breach by Lessee of the same or any other
covenant or condition of this Lease. Acceptance by Lessor of rent or other
payment with knowledge of a breach of or default under any term hereof by Lessee
shall not constitute a waiver of Lessor by such breach or default.
SECTION 32
GOVERNING LAW
This Indenture shall be construed and interpreted in accordance with
the laws of the State of New Hampshire.
SECTION 33
FORCE MAJEURE
Except as expressly provided herein, there shall be no abatement,
diminution or reduction of the rent or other charges payable by the Lessee
hereunder based upon, or claimed as a result of, any act of God, act of the
public enemy, governmental action, or other casualty, cause or happening beyond
the control of the parties hereto.
SECTION 34
COUNTERPARTS
This Indenture may be executed in two (2) or more counterparts, each of
which shall be deemed an original and all collectively but one and the same
instrument.
22
<PAGE> 23
SECTION 35
MODIFICATION; ENTIRE AGREEMENT
This Lease contains and embraces the entire agreement between the
parties hereto and neither it nor any part of it may be changed, altered,
amended, modified, limited or extended orally or by agreement between the
parties unless such agreement be expressed in writing and signed by Lessor and
Lessee or their respective successors in interest.
SECTION 36
SECTION HEADINGS
The headings at the beginning of each of the Sections hereof are solely
for purposes of convenience and identification and are not to be deemed or
construed to be part of this Lease.
SECTION 37
SEVERABILITY
If any term, clause or provision of this Lease is judged to be invalid
and/or unenforceable, the validity and/or enforceability of any other term,
clause or provision in this Lease shall not be affected thereby.
SECTION 38
DEFINITION AND LIABILITY OF LESSOR
The term "Lessor" as used in this Lease means only the owner or
mortgagee in possession for the time being of the building in which the Leased
Premises are located or the owner of a leasehold interest in said building
and/or the land thereunder (or the Managing Agent of any such owner or
mortgagee) so that in the event of sale of said building or leasehold interest
or an assignment of this Lease or a demise of said building and/or land, Lessor
shall be and hereby is entirely freed and relieved of all obligations of Lessor
subsequently accruing.
It is specifically understood and agreed that there shall be no
personal liability of Lessor (nor Lessor's agent, if any) in respect to any of
the covenants, conditions or provisions of this Lease. In the event of breach or
default by Lessor, of any of its obligations under this Lease, Lessee shall look
solely to the equity of the Lessor in 20 Industrial Park Drive, Nashua, New
Hampshire for the satisfaction of Lessee's remedies.
23
<PAGE> 24
SECTION 39
BROKERAGE
Each of the parties represents and warrants that there are no claims
for brokerage commissions or finder's fees with respect to this Lease or the
negotiation hereof except as set forth in this section. The parties further
agree to indemnify the other against, hold harmless from, all liabilities
arising from any such claim (including without limitation, the cost of attorney
fees in connection therewith) except; the broker for this Lease is Tamposi --
Nash Real Estate Group, Inc. whose fee shall be paid by the Landlord.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture of
Lease to be executed as of the day and year first above written.
FIVE N ASSOCIATES
/S/ Sandra J. Martinson /S/ Q. Peter Nash
- -------------------------- -------------------------------
Witness Q. Peter Nash, Managing Partner
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
/S/ Thomas J. Mcdonald /S/ Charles E. Moran
- -------------------------- -------------------------------
Witness Lessee
PERSONAL GUARANTEE
In consideration of the execution of this Lease by the Lessor and for
other valuable consideration, the undersigned hereby issues his/her personal
guarantee for the faithful performance of all terms and conditions of this Lease
and accepts full responsibility that all obligations of the Lessee, including
the prompt payment of all rental and other charges recited herein, shall be made
when due and that in the event of any default of Lessee, the undersigned shall
reimburse and indemnify the Lessor for all costs and expenses incurred to
correct any such default. The undersigned agrees that the Lessor may proceed
directly against him/her for such payments owed or for such activity to be
performed without proceeding in the first instance against the Lessee or any
other obligor or guarantor of the Lessee as recited herein. The above provision
will be effective for a period of 1 1/2 years (8/31/99).
/S/ Thomas J. Mcdonald /S/ Charles E. Moran
- -------------------------- -------------------------------
Witness Lessee
24
<PAGE> 25
SECOND SUPPLEMENTAL AGREEMENT
SECOND SUPPLEMENTAL AGREEMENT dated as of the 31st day of August,
1999, to the Lease dated February 18, 1998 and the First Supplemental Agreement
dated October 26, 1998, by and between FIVE N ASSOCIATES of 40 Temple Street,
Nashua, New Hampshire (Lessor) and SKILLSOFT CORPORATION, of 20 Industrial Park
Drive, Nashua, New Hampshire (Lessor).
WHEREAS the Lessor and the Lessee desire to amend the Lease,
effective upon the execution of this agreement, as follows:
Section 1 -- Leased Premises - The Leased premises shall also include
4,686 square feet of space on the second floor.
Section 3.1 - The base annual rent shall be changed to One Hundred
Thousand One Hundred Forty Five Dollars ($100,145.00) payable in monthly
installments of Eight Thousand Three Hundred Forty-Five and 41/100 Dollars
($8,345.41) with the fist monthly installment of base rent commencing October 1,
1999.
Section 3.3 - The Lessee's pro-rata share shall be changed to
52.263%. and the base annual rent shall be changed to One Thousand One Hundred
Forty Five ($100,145) payable in monthly installments of Eight Thousand Three
Hundred Forty Five and 41/100 Dollars ($8,345,41) with the first monthly
installment of base rent commencing on October 1, 1999.
Section 11.2 - The parking space percentage shall be changed to
52.263%.
Section 13.1 - The Lessee's pro rata share of real estate taxes shall
be changed to 52.263%.
Section 40 - Right of First Refusal to Lease - The Lessee's right of
first refusal shall be changed to be the remaining 5,314 square feet of space on
the second floor of the building.
Additional Provision - The Lessor, at its expense, shall perform its
fit-up work which shall include the construction of the demising wall, the
construction of a hallway and entry door to the common electrical room, the
replacement of all damaged ceiling tiles, shampooing the common area carpet,
cleaning of bathrooms, cleaning or relamping the light fixtures and the removal
of the soda vending machine. Lessor shall also patch and paint the leased
premises and the Lessee shall be responsible for 50% of the cost, which is
estimated to be $1,200.00.
Except as hereinabove amended, all of the provisions of the above
mentioned Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Second Supplemental
Agreement to be executed as of the day and year first above written.
FIVE N ASSOCIATES
/s/ Q. Peter Nash
- -------------------------------------- ----------------------------------
Witness Q. Peter Nash, Managing Partner
SKILLSOFT CORPORATION
/s/ Sara Buttarini /s/ Charles E. Moran
- --------------------------------------- -----------------------------------
Witness Charles E. Moran, President & CEO
<PAGE> 1
Exhibit 10.10
Loan and Security Agreement
Borrower: SkillSoft Corporation
Address: 20 Industrial Park Drive
Nashua, NH 03062
Date: June 18, 1999
This Loan and Security Agreement is entered into on the above date between
GREYROCK CAPITAL, a Division of NationsCredit Commercial Corporation ("GC"),
whose address is 10880 Wilshire Boulevard, Suite 1850, Los Angeles, California
90024 and the borrower named above ("Borrower"), whose chief executive office is
located at the above address ("Borrower's Address"). NationsCredit Commercial
Corporation is hereinafter referred to as "GC". The Schedule to this Agreement
(the "Schedule") being signed concurrently is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set forth in
Section 8 below.)
1. LOANS.
1.1 LOANS. GC will make loans to Borrower (the "Loans"), up to the amounts
(the "Credit Limit") shown on the Schedule, provided no Default or Event of
Default has occurred and is continuing. If at any time or for any reason the
total of all outstanding Loans and all other Obligations exceeds the Credit
Limit, Borrower shall pay the amount of the excess to GC, without notice or
demand*.
*WITHIN ONE BUSINESS DAY
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement or in another written agreement signed by GC and
Borrower. Interest shall be payable monthly, on the last day of the month.
Interest may, in GC's discretion, be charged to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as the other Loans.
1.3 FEES. Borrower shall pay GC the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to GC and are not
refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to GC a security interest in all of
Borrower's interest in the following, whether now owned or hereafter acquired,
and
<PAGE> 2
wherever located (collectively, the "Collateral"): All Inventory, Equipment,
Receivables, Investment Property and General Intangibles, including, without
limitation, all of Borrower's Deposit Accounts, all money, all collateral in
which GC is granted a security interest pursuant to any other present or future
agreement, all property now or at any time in the future in GC's possession, and
all proceeds (including proceeds of any insurance policies, proceeds of letters
of credit, proceeds of proceeds and claims against third parties), all products
of the foregoing, and all books and records related to any of the foregoing.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce GC to enter into this Agreement and to make Loans,
Borrower represents and warrants to GC as follows, and Borrower covenants that
the following representations will continue to be true,* and that Borrower will
at all times comply with all of the following covenants:
*(EXCEPT AS EXPRESSLY PROVIDED BELOW FOR CHANGES PURSUANT TO WRITTEN NOTICE
BY BORROWER TO GC)
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or* any law or any material indebtedness
or obligation under any material agreement or instrument which is binding upon
Borrower or its property, and (iv) do not constitute grounds for acceleration of
any material agreement or instrument which is binding upon Borrower or its
property.
*TO BORROWER'S KNOWLEDGE
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower
-2-
<PAGE> 3
shall give GC 30 days prior written notice before changing its name or doing
business under any other name. Borrower has complied, and will in the future
comply, with all laws relating to the conduct of business under a fictitious
business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule *. Borrower will give GC at least 30 days' prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral** other than Borrower's
Address or one of the locations set forth on the Schedule.
*(EXCEPT FOR SALES OFFICES AT WHICH NOT MORE THAN $50,000 OF COLLATERAL IS
LOCATED)
**TO ANY NEW LOCATION NOT PREVIOUSLY REPORTED TO GC
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. GC now has, and will continue to
have, a first- priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and borrower will at all
times defend GC and the Collateral against all claims of others*. So long as any
Loan is outstanding which is a term loan, none of the Collateral now is or will
be affixed to any real property in such a manner, or with such intent, as to
become a fixture. Borrower is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in any of the
Collateral** and no such lease now prohibits, restrains, impairs or will
prohibit, restrain or impair Borrower's right to remove any Collateral from the
leased premises**. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise), Borrower shall, whenever requested by GC, use
its*** best efforts to cause such third party to execute and deliver to GC, in
form acceptable to GC, such waivers and subordinations as GC shall specify, so
as to ensure that GC's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force
and effect, and will comply with all the**** terms of, any lease of real
property where any of the Collateral now or in the future may be located+.
*WITH RESPECT TO THE COLLATERAL (EXCEPT FOR THOSE HOLDING PERMITTED LIENS)
-3-
<PAGE> 4
**(UNLESS BORROWER PROVIDES GC WITH A LANDLORD WAIVER WITH RESPECT THERETO
IN FORM AND SUBSTANCE SATISFACTORY TO GC, IF SO REQUESTED BY GC, OR UNLESS THE
SAME IS A SALES OFFICE AT WHICH NOT MORE THAN $50,000 OF COLLATERAL IS LOCATED)
***REASONABLE
****MATERIAL
+EXCEPT FOR LEASES OF SALES OFFICES AT WHICH NOT MORE THAN $50,000 OF
COLLATERAL IS LOCATED
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the *Collateral in
good working condition, ordinary wear and tear excepted, and Borrower will not
use the Collateral for any unlawful purpose. Borrower will immediately advise GC
in writing of any material loss or damage to the Collateral. Borrower will
maintain the validity of, and otherwise maintain, preserve and protect, its
patents, trademarks, copyrights and other intellectual property in accordance
with prudent business practices.**
*EQUIPMENT AND OTHER TANGIBLE
**HOWEVER, NOTHING CONTAINED IN THIS SECTION 3.5 WILL BE DEEMED TO PROHIBIT
BORROWER FROM DISPOSING OF OBSOLETE EQUIPMENT AND OTHER TANGIBLE COLLATERAL,
PROVIDED BORROWER REPLACES SAID EQUIPMENT WITH EQUIPMENT OF SUBSTANTIALLY
SIMILAR FUNCTION.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address books and records* an accounting system in accordance with
generally acceptable accounting principles.
*WHICH ARE COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS AND WHICH
COMPRISE
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to GC have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will fairly reflect the financial condition of Borrower, at the times and
for the periods therein stated. Between the last date covered by any such
statement provided to GC and the date hereof, there has been no material adverse
change in the financial condition or business of Borrower. Borrower is now and
will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and
-4-
<PAGE> 5
Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower*.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies GC in writing of the commencement of, and any material development in,
the proceedings, and (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency. Borrower shall, at all
times, utilize the services of an outside payroll service providing for the
automatic deposit of all payroll taxes payable by Borrower.
*(EXCEPT WHERE FAILURE TO DO SO WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON
BORROWER AND WOULD NOT RESULT IN A LIEN ON ANY OF THE COLLATERAL, BUT ONLY SO
LONG AS THE BORROWER MAINTAINS ADEQUATE RESERVES WITH RESPECT TO SUCH
LIABILITIES IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
CONSISTENTLY APPLIED)
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters*.
*WHICH ARE BINDING ON BORROWER
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which* result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform GC to writing
of any claim, proceeding, litigation or investigation in the future, threatened
or instituted by or against Borrower**.
-5-
<PAGE> 6
*IS REASONABLY LIKELY TO
**WHICH, IF DETERMINED ADVERSELY TO THE BORROWER, WOULD BE REASONABLY
LIKELY TO RESULT IN (I) A JUDGMENT, LOSS OR PAYMENT OF $50,000 OR MORE, OR
$100,000 OR MORE IN THE AGGREGATE, OR (II) A MATERIAL ADVERSE CHANGE IN THE
BUSINESS OR CONDITION OF BORROWER, OR A MATERIAL IMPAIRMENT IN THE ABILITY OF
BORROWER TO CARRY ON ITS BUSINESS IN SUBSTANTIALLY THE SAME MANNER AS IT IS NOW
BEING CONDUCTED
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
3.12 YEAR 2000 COMPLIANCE. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its subsidiaries (or its suppliers
and vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable. The Borrower reasonably believes that all computer applications
(including those of its suppliers and vendors) that are material to its or any
of its subsidiaries' business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000 (that is, be "Year 2000 compliant"), except to the extent that such
failure to do so could not reasonably be expected to have a material adverse
effect. The Borrower will promptly notify GC in the event the Borrower discovers
or determines that any computer application (including those of its suppliers
and vendors) that is material to its or any of its subsidiaries' business and
operations will not be Year 2000 compliant on a timely basis, except to the
extent that such failure could not reasonably be expected to have a material
adverse effect.
4. RECEIVABLES AND INVESTMENT PROPERTY.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to GC that each Receivable with respect to which Loans are requested by
Borrower shall, on the date each Loan is requested and made, represent an
undisputed, bona fide, existing, unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods* or the rendition of
services, in the ordinary course of Borrower's business**.
*, THE LICENSING OF SOFTWARE,
-6-
<PAGE> 7
**(EXCEPT AS DISCLOSED TO AND APPROVED BY GC)
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to GC as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be, and all
signatories and endorsers* have the capacity to contract. All sales and other
transactions underlying or giving rise to each Receivable shall comply with all
applicable laws and governmental rules and regulations. All signatures and
indorsements on all documents, instruments and agreements relating to all
Receivables* are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
*(TO THE BEST OF BORROWER'S KNOWLEDGE, FOR PARTIES OTHER THAN BORROWER)
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES AND INVESTMENT
PROPERTY. Borrower shall deliver to GC transaction reports and loan requests,
schedules and assignments of all Receivables, and schedules of collections, all
on GC's standard forms*; provided, however, that Borrower's failure to execute
and deliver the same shall not affect or limit GC's security interest and other
rights in all of Borrower's Receivables, nor shall GC's failure to advance or
lend against a specific Receivable affect or limit GC's security interest and
other rights therein. Together with each such schedule and assignment, or later
if requested by GC, Borrower shall furnish GC with copies (or, at GC's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Receivables, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to GC an aged accounts receivable trial
balance in such form and at such intervals as GC shall** request***. In
addition, Borrower shall deliver to GC the originals of all instruments, chattel
paper, security agreements, guarantees and other documents and property
evidencing or securing any Receivables, immediately upon receipt thereof and in
the same form as received, with all necessary indorsements, and, upon the
request of GC, Borrower shall deliver to GC all letters of credit and also all
certificated securities with respect to any Investment Property, with all
necessary indorsements, and obtain such account control agreements with
securities intermediaries and take such other action with respect to any
Investment Property, as GC shall request, in form and substance satisfactory to
GC. Upon request of GC Borrower additionally shall obtain consents from any
letter of credit issuers with respect to the assignment to GC of any letter of
credit proceeds.
-7-
<PAGE> 8
*,AS GC SHALL REASONABLE REQUEST
**REASONABLY
***, PROVIDED THAT IF NO EVENT OF DEFAULT EXISTS, GC MAY NOT REQUEST THE
FOREGOING MORE THAN ONCE A MONTH.
4.4 COLLECTION OF RECEIVABLES AND INVESTMENT PROPERTY INCOME. Borrower
shall have the right to collect all Receivables and retain all Investment
Property payments and distributions, unless and until a Default or an Event of
Default has occurred. Borrower shall hold all payments on, and proceeds of, and
distributions with respect to, Receivables and Investment Property in trust for
GC, and Borrower shall deliver all such payments, proceeds and distributions to
GC, within one business day after receipt of the same, in their original form,
duly endorsed, to be applied to the Obligations in such order as GC shall
determine*. Upon the request of GC, any such distributions and payments with
respect to any Investment Property held in any securities account shall be held
and retained in such securities account as part of the Collateral.
*,SUBJECT TO SECTION 7.5
4.5 DISPUTES. Borrower shall notify GC promptly of all disputes* or claims
relating to Receivables on the regular reports to GC. Borrower shall not
forgive, or settle any Receivable for less than payment in full, or agree to do
any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's-length transactions, which are
reported to GC on the regular reports provided to GC; (ii) no Default or Event
of Default has occurred and is continuing; and (iii) taking into account all
such settlements and forgiveness, the total outstanding Loans and other
Obligations will not exceed the Credit Limit.
*IN EXCESS OF $50,000
4.6 RETURNS. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to GC). In the event any attempted return occurs after
the occurrence of any Event of Default, Borrower shall (i) not accept any return
without GC's prior written consent, (ii) hold the returned Inventory in trust
for GC, (iii) segregate all returned
-8-
<PAGE> 9
Inventory from all of Borrower's other property, (iv) conspicuously label the
returned Inventory as GC's property, and (v) immediately notify GC of the return
of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on GC's request deliver such returned
Inventory to GC.
4.7 VERIFICATION. GC may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or GC or such other name as GC may choose, and GC or its designee may,
at any time, notify Account Debtors that *has a security interest in the
Receivables.**
*GC
**IF NO EVENT OF DEFAULT EXISTS, GC WILL PROVIDE BORROWER WITH ONE WEEK'S
PRIOR WRITTEN NOTICE OF ANY SUCH VERIFICATION.
4.8 LIABILITY. GC shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall GC be deemed to be responsible for any of Borrower's obligations under any
contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve GC from liability for its own gross negligence or willful
misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to GC, in such form and amounts as GC may
reasonable require*, and Borrower shall provide evidence of such insurance to
GC, so that GC is satisfied that such insurance is, at all times, in full force
and effect. All such insurance policies shall name GC as an additional loss
payee, and shall contain a lenders loss payee endorsement in form reasonably
acceptable to GC. Upon receipt of the proceeds of any such insurance, GC shall
apply such proceeds in reduction of the Obligations as GC shall determine in its
sole discretion, except that, provided no Default or Event of Default has
occurred and is continuing, GC shall release to Borrower** insurance proceeds
with respect to Equipment totaling less than $100,000, which shall be utilized
by Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid***. GC may require reasonable assurance that the
insurance
-9-
<PAGE> 10
proceeds so released will be so used. If Borrower fails to provide or pay for
any insurance, GC may, but is not obligated to, obtain the same at Borrower's
expense. Borrower shall promptly deliver to GC copies of all**** reports made to
insurance companies.
*IN ACCORDANCE WITH APPLICABLE LAW
**(i)
***AND (ii) INSURANCE PROCEEDS WITH RESPECT TO INVENTORY TOTALING LESS THAN
$100,000 WHICH SHALL BE UTILIZED BY BORROWER FOR THE REPLACEMENT OF THE
INVENTORY WITH RESPECT TO WHICH THE INSURANCE PROCEEDS WERE PAID.
****MATERIAL
5.2 REPORTS. Borrower, at its expense, shall provide GC with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as GC shall from time to time reasonably specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one business day's notice, GC, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records*.
GC shall take reasonable steps to keep confidential all information obtained in
any such inspection or audit, but GC shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys, and pursuant to
any subpoena or other legal process. The foregoing inspections and audits shall
be at Borrower's expense and the charge therefor shall be $600 per person per
day (or such higher amount as shall represent GC's then current standard charge
for the same), plus reasonable out-of-pockets expenses. Borrower shall not be
charged more than $3,000 per audit (plus reasonable out-of-pockets expenses),
nor shall audits be done more frequently than four times per calendar year**,
provided that the foregoing limits shall not apply after the occurrence of a
Default or Event of Default, nor shall they restrict GC's right to conduct
audits at its own expense (whether or not a Default or Event of Default has
occurred). Borrower will not enter into any agreement with any accounting firm,
service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining GC's written
consent, which may be conditioned upon such accounting firm, service bureau or
other third party agreeing to give GC the same rights with respect to access to
books and records and related rights as GC has under this Agreement.
-10-
<PAGE> 11
*ANY SUCH INSPECTION SHALL BE CONDUCTED BY GC, OR ITS AGENTS, WITHOUT
MATERIAL HINDRANCE OR INTERRUPTION OF BORROWER'S BUSINESS.
**OR MORE THAN ONCE DURING ANY TWO MONTH PERIOD IN ANY CALENDAR YEAR
5.4 REMITTANCE OF PROCEEDS. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower to GC* in
the original form in which received by Borrower not later than the following
business day after receipt by Borrower**, to be applied to the Obligations in
such order as GC shall determine***; provided that, if no Default or Event of
Default has occurred and is continuing, and if no term loan is outstanding
hereunder, then Borrower shall not be obligated to remit to GC the proceeds of
the sale of Equipment which is sold in the ordinary course of business, in a
good-faith arm's-length transaction****. Except for the proceeds of the sale of
Equipment as set forth above, Borrower shall not commingle proceeds of
Collateral with any of Borrower's other funds or property, and shall hold such
proceeds separate and apart from such other funds and property and in an express
trust for GC. Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
*(OR, AT GC'S REQUEST, INTO A LOCKBOX ACCOUNT, OR OTHER BLOCKED ACCOUNT,
ESTABLISHED PURSUANT TO AN AGREEMENT ACCEPTABLE TO GC, AND WITH A BANK SELECTED
BY BORROWER WHICH IS ACCEPTABLE TO GC)
**(EXCEPT WIRE TRANSFER REMITTANCES RECEIVED BY BORROWER SHALL BE
TRANSMITTED TO GC IN TOTAL THE DAY FOLLOWING POSTING TO BORROWER'S BANK ACCOUNT)
***(SUBJECT TO SECTION 7.5)
****NOR SHALL BORROWER BE OBLIGATED TO REMIT TO GC ANY SUCH PROCEEDS UNLESS
THE AGGREGATE AMOUNT THEREOF RECEIVED AND HELD BY THE BORROWER EQUALS OR EXCEEDS
$25,000
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without GC's prior written consent, do any of the following:
(i) merge or consolidate with another corporation or entity*; (ii) acquire any
assets, except in the ordinary course of business**; (iii) enter into any***,
(iv) sell or transfer any Collateral, except that, provided no Default or Event
of Default has occurred and is continuing, Borrower may (a) sell finished
Inventory in the ordinary course of Borrower's business, (b) if no term loan is
outstanding hereunder, sell Equipment in the ordinary course of business, in
good-faith arm's-length transactions, and (c) license or sublicense on a
non-exclusive basis intellectual property in the ordinary course of Borrower's
business; (v) store any Inventory or other Collateral with any
-11-
<PAGE> 12
warehouseman or other third party****; (vi) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii)
make any loans of any money or other assets*****; (viii) incur any debts,
outside the ordinary course of business, which would have a material adverse
effect on Borrower or on the prospect of repayment of the Obligations; (ix)
guarantee or otherwise become liable with respect to the obligations of another
party or entity+; (x) pay or declare any dividends on Borrower's stock (except
for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's
stock++; (xii) make any change in Borrower's capital structure which would have
a material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or (xiii) dissolve or elect to dissolve; or (xiv) agree to do any
of the foregoing.
*(EXCEPT IN A TRANSACTION IN WHICH (A) THE CURRENT MAJORITY SHAREHOLDERS OF
THE BORROWER HOLD AT LEAST 51% OF THE COMMON STOCK AND ALL OTHER CAPITAL STOCK
OF THE SURVIVING CORPORATION IMMEDIATELY AFTER SUCH MERGER OR CONSOLIDATION, (B)
THE BORROWER IS THE SURVIVING CORPORATION AND (C) NO DEFAULT OR EVENT OF DEFAULT
SHALL EXIST EITHER IMMEDIATELY PRIOR TO OR AFTER GIVING EFFECT TO THE
TRANSACTION, AND EXCEPT THAT BORROWER MAY MERGE INTO ANOTHER CORPORATION FOR
PURPOSES OF EFFECTING A REINCORPORATION INTO ANOTHER STATE AFTER GC HAS NOTIFIED
BORROWER IN WRITING THAT ALL STEPS NECESSARY TO PROTECT THE VALIDITY AND
PERFECTION OF GC'S FIRST-PRIORITY SECURITY INTEREST IN THE COLLATERAL, SUBJECT
TO PERMITTED LIENS, HAVE BEEN TAKEN)
**(EXCEPT IN A TRANSACTION OR A SERIES OF TRANSACTIONS NOT INVOLVING THE
PAYMENT OF AN AGGREGATE AMOUNT IN EXCESS OF $100,000, PROVIDED THAT NO DEFAULT
OR EVENT OF DEFAULT SHALL EXIST EITHER IMMEDIATELY PRIOR TO OR AFTER GIVING
EFFECT TO THE TRANSACTION)
***BUSINESS SUBSTANTIALLY DIFFERENT FROM THAT PRESENTLY ENGAGED IN
****, UNLESS SUCH WAREHOUSEMAN OR OTHER THIRD PARTY ENTERS INTO A BAILEE
AGREEMENT WITH GC ON TERMS SATISFACTORY TO GC IN ITS SOLE DISCRETION
*****, EXCEPT (A) ADVANCES TO SUBSIDIARIES OF THE BORROWER AND CUSTOMERS OR
SUPPLIERS, IN EACH CASE, IF CREATED, ACQUIRED OR MADE IN THE ORDINARY COURSE OF
BUSINESS, (B) TRAVEL ADVANCES IN THE ORDINARY COURSE OF BUSINESS, (C) EMPLOYEE
RELOCATION LOANS IN THE ORDINARY COURSE OF BUSINESS, (D) OTHER EMPLOYEE LOANS
AND ADVANCES IN THE ORDINARY COURSE OF BUSINESS, (E) LOANS TO EMPLOYEES,
OFFICERS AND DIRECTORS FOR THE PURPOSE OF PURCHASING EQUITY SECURITIES OF THE
BORROWER, (F) OTHER LOANS TO OFFICERS AND EMPLOYEES APPROVED BY THE BOARD OF
DIRECTORS OF THE BORROWER AND (G) OTHER LOANS OR EXTENSIONS OF CREDIT NOT
OTHERWISE PERMITTED HEREUNDER, PROVIDED THAT THE AGGREGATE AMOUNT OF ALL OF THE
FOREGOING ITEMS SET FORTH IN (A), (B), (D), (E), (F) AND (G) SHALL NOT EXCEED
$1,000,000 AT ANY ONE TIME OUTSTANDING EXCEPT THAT
-12-
<PAGE> 13
ANY LOANS MADE PRIOR TO THE DATE HEREOF PURSUANT TO ITEM (A) SHALL NOT BE
INCLUDED IN SAID $1,000,000 LIMIT, AND PROVIDED, FURTHER, THAT NO DEFAULT OR
EVENT OF DEFAULT SHALL EXIST EITHER IMMEDIATELY PRIOR TO OR AFTER GIVING EFFECT
TO THE MAKING OF ANY OF THE FOREGOING ADVANCES, LOANS OR OTHER EXTENSIONS OF
CREDIT IN CLAUSES (A) THROUGH (G)
+EXCEPT THAT BORROWER MAY ISSUE GUARANTEES OF ITS SUBSIDIARIES' OBLIGATIONS
IN THE ORDINARY COURSE OF ITS BUSINESS IN AN AGGREGATE AMOUNT AT ANY ONE TIME
OUTSTANDING NOT TO EXCEED $250,000
++(EXCEPT THAT BORROWER MAY REPURCHASE OR REDEEM SHARES OF ITS CAPITAL
STOCK (A) PURSUANT TO EMPLOYEE OPTION PLANS FOR AN AGGREGATE PURCHASE PRICE NOT
TO EXCEED $100,000 PER FISCAL YEAR, ON A NON-CUMULATIVE BASIS AND (B) IF A
CAPITAL CONTRIBUTION TO BORROWER HAS BEEN MADE PRIOR TO ANY SUCH PURCHASE OR
REDEMPTION IN AN AGGREGATE AMOUNT AT LEAST EQUAL TO THE AMOUNT OF THE PURCHASE
OR REDEMPTION)
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against GC with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to GC, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that GC may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.7 NOTIFICATION OF CHANGES. Borrower will promptly notify GC in writing
of any change in its* directors, the opening of any new bank account or other
deposit account, the opening of any new securities account, and any material
adverse change in the business or financial affairs of Borrower.
*EXECUTIVE OFFICERS OR
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by GC,
to execute all documents and take all actions, as GC may deem reasonably
necessary or useful in order to perfect and maintain GC's perfected security
interest in the Collateral, and in order to fully consummate the transactions
contemplated by this Agreement.
5.9 INDEMNITY. Borrower hereby agrees to indemnify GC and hold GC harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including attorneys'
fees), of every nature, character and description, which GC may sustain or incur
based upon or arising out of any of the Obligations, any actual or alleged
failure to collect and pay over any withholding or other tax relating to
Borrower or its employees, any relationship or agreement between GC and
Borrower, any actual or alleged failure of
-13-
<PAGE> 14
GC to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by GC relating to Borrower or the
Obligations (except any such amounts sustained or incurred as the result of the
gross negligence or willful misconduct of GC or any of its directors, officers,
employees, agents, attorneys, or any other person affiliated with or
representing GC). Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full force
and effect.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to terminate
this Agreement effective on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three business days after
written notice of termination is given to GC; or (ii) by GC at any time after
the occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower or by GC under this Section 6.2,
Borrower shall pay to GC a termination fee (the "Termination Fee") in the amount
shown on the Schedule. The Termination Fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate equal
to the highest rate applicable to any of the Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of GC, then on such date Borrower shall provide to GC cash
collateral in an amount equal to 110% of the face amount of all such letters of
credit plus all interest, fees and costs due or (in GC's* estimation) likely to
become due in connection therewith, to secure all of the Obligations relating to
said letters of credit, pursuant to GC's then standard form cash pledge
agreement.
-14-
<PAGE> 15
Notwithstanding any termination of this Agreement, all of GC's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of GC, GC may, in its sole discretion,
refuse to make any further loans after termination. No termination shall in any
way affect or impair any right or remedy of GC, nor shall any such termination
relieve Borrower of any Obligation to GC, until all of the Obligations have been
paid and performed in full. Upon payment and performance in full of all the
Obligations and termination of this Agreement, GC shall promptly deliver to
Borrower termination statements, requests for reconveyances and such other
documents as may be reasonably required to terminate GC's security interests.
*REASONABLE
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
GC immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to GC by Borrower or any
Guarantor or any of Borrower's or any Guarantor's officers, employees or agents,
now or in the future, shall be untrue or misleading in a material respect; or
(b) Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation*; (c) the total Loans and other Obligations
outstanding at any time shall exceed the Credit Limit; or (d) Borrower shall
fail to perform any non-monetary Obligation which by its nature cannot be cured;
or (e) Borrower shall fail to perform any other non-monetary Obligation, which
failure is not cured within ** business days after the date performance is due;
or (f) any levy, assessment, attachment, seizure, lien or encumbrance (other
than a Permitted Lien) is made on all or any part of the Collateral which is not
cured within *** days after the occurrence of the same; or (g) any default or
event of default occurs under any obligation secured by a Permitted Lien, which
is not cured within any applicable cure period or waived in writing by the
holder of the Permitted Lien ****; or (h) Borrower or any Guarantor breaches any
material contract or obligation, which has or may reasonably be expected to have
a material adverse effect on Borrower's or such Guarantor's business or
financial condition; or (i) dissolution, termination of existence, insolvency or
business failure of Borrower or any Guarantor; or appointment of a receiver,
trustee or custodian, for all or any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceeding by Borrower or
any Guarantor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect; or (j) the commencement of any
proceeding
-15-
<PAGE> 16
against Borrower or any Guarantor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 45 days after the date commenced; or (k)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing; or (l)
revocation or termination of, or limitation or denial of liability upon, any
pledge of any certificate of deposit, securities or other property or asset
pledged by any other Person to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or against
any such Person under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect; or (m) Borrower or any Guarantor
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations terminates or in any way limits or terminates its subordination
agreement; or (n) there shall be a change in the record of beneficial
ownership*****; or (o) Borrower or any Guarantor shall generally not pay its
debts as they become due, or Borrower or any Guarantor shall conceal, remove or
transfer any part of its property, with intent to hinder, delay or defraud its
creditors, or make or suffer any transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p)
there shall be a material adverse change in Borrower's or any Guarantor's
business or financial condition. GC may cease making any Loans hereunder during
any of the above cure periods, and thereafter if an Event of Default has
occurred.
*AND IN THE CASE OF ANY AMOUNT OTHER THAN PRINCIPAL, SUCH DEFAULT SHALL
CONTINUE FOR THREE BUSINESS DAYS
**20
***30
****, PROVIDED THAT IF THE AMOUNT INVOLVED IS LESS THAN $50,000 THEN THE
SAME SHALL NOT BE AN EVENT OF DEFAULT UNLESS AND UNTIL THE HOLDER OF THE
PERMITTED LIEN COMMENCES ANY ACTION TO ENFORCE ITS LIEN AGAINST ANY COLLATERAL;
*****(WITHIN THE MEANING OF RULE 13D-3 UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934) OF SECURITIES OF THE BORROWER REPRESENTING EFFECTIVE CONTROL OVER
THE ELECTION OF A MAJORITY OF THE BOARD OF DIRECTORS OF THE BORROWER
7.2 REMEDIES. Upon the occurrence and during the continuance of any Event
of Default,* GC, at its option, and without notice or demand of any kind (all of
which
-16-
<PAGE> 17
are hereby expressly waived by Borrower), may do any one or more of the
following**: (a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement; (b) Accelerate and
declare all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any Obligation; (c) Take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes GC without judicial process to enter onto any of Borrower's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as GC deems it reasonably necessary in order to complete the enforcement of its
rights under this Agreement or any other agreement; provided, however, that
should GC seek to take possession of any of the Collateral by Court process,
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession; (ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and (iii) any requirement that
GC retain possession of, and not dispose of, any such Collateral until after
trial or final judgment; (d) Require Borrower to assemble any or all of the
Collateral and make it available to GC at places designated by GC which are
reasonably convenient to GC and Borrower, and to remove the Collateral to such
locations as GC may deem advisable; (e) Complete the processing, manufacturing
or repair of any Collateral prior to a disposition thereof and, for such purpose
and for the purpose of removal, GC shall have the right to use Borrower's
premises, vehicles, hoists, lifts, cranes, equipment and all other property
without charge; (f) Sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time GC obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. GC shall have the right to conduct
such disposition on Borrower's premises without charge, for such time or times
as GC deems reasonable, or on GC's premises, or elsewhere and the Collateral
need not be located at the place of disposition. GC may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrowers of any liability Borrower may have if any Collateral is defective as
to title or physical condition or otherwise at the time of sale; (g) Demand
payment of, and collect any Receivables and General Intangibles comprising
Collateral and, in connection therewith, Borrower irrevocably authorizes GC to
endorse or sign Borrower's name on all collections, receipts, instruments and
other documents, to take possession of and open mail addressed to Borrower and
-17-
<PAGE> 18
remove therefrom payments made with respect to any item of the Collateral or
proceeds thereof, and, in GC's sole discretion, to grant extensions of time to
pay, compromise claims and settle Receivables, General Intangibles and the like
for less than face value; (h) Collect, receive, dispose of and realize upon any
Investment Property, including withdrawal of any and all funds from any
securities accounts; and (i) Demand and receive possession of any of Borrower's
federal and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by GC with respect to the
foregoing shall be added to and become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
*AND AT ANY TIME THEREAFTER, WHILE SUCH EVENT OF DEFAULT IS CONTINUING
**(EXCEPT THAT, PRIOR TO OR CONCURRENTLY WITH THE TAKING OF THE FIRST OF
ANY OF THE FOLLOWING ACTIONS, GC SHALL GIVE BORROWER ONE GENERAL WRITTEN NOTICE
STATING THAT GC IS "PROCEEDING TO EXERCISE ITS RIGHTS AND REMEDIES" OR WORDS TO
THAT EFFECT)
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and GC
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
*days prior to the sale, and, in the case of a public sale, notice of the sale
is published at least *days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by GC, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m.;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, GC may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. GC shall be free to employ
other methods of noticing and selling the Collateral, in its discretion, if they
are commercially reasonable. Without limiting the generality of the foregoing,
Borrower recognizes that GC may be unable to make a public sale of any or all of
the Investment Property, by reason of prohibitions contained in applicable
securities laws or otherwise, and expressly agrees that a private sale to a
restricted group of purchasers for investment and not with a view to any
distribution thereof shall be considered a commercially reasonable sale.
*TEN
-18-
<PAGE> 19
7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of
any Event of Default, without limiting GC's other rights and remedies, Borrower
grants to GC an irrevocable power of attorney coupled with an interest,
authorizing and permitting GC (acting through any of its employees, attorneys or
agents) at any time*, at its option, but without obligation, with or without
notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but GC agrees to exercise the
following powers in a commercially reasonable manner: (a) Execute on behalf of
Borrower any documents that GC may, in its sole discretion, deem advisable in
order to perfect and maintain GC's security interest in the Collateral, or in
order to exercise a right of Borrower or GC, or in order to fully consummate all
the transactions contemplated under this Agreement, and all other present and
future agreements; (b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
GC's Collateral or in which GC has an interest; (c) Execute on behalf of
Borrower, any invoices relating to any Receivable, any draft against any Account
Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy,
any Notice of Lien, claim of mechanic's, materialman's or other lien, or
assignment or satisfaction of mechanic's materialman's or other lien; (d) Take
control in any manner of any cash or non-cash items of payment or proceeds of
Collateral; endorse the name of Borrower upon any instruments, or documents,
evidence of payment or Collateral that may come into GC's possession, (e)
Endorse all checks and other forms of remittances received by GC; (f) Pay,
contest or settle any lien, charge, encumbrance, security interest and adverse
claim in or to any of the Collateral, or any judgment based thereon, or
otherwise take any action to terminate or discharge the same; (g) Grant
extensions of time to pay, compromise claims and settle Receivables and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give GC the same rights of access and other rights with respect
thereto as GC has under this Agreement; (k) Execute and deliver to any
securities intermediary or other Person any entitlement order, account control
agreement or other notice, document or instrument with respect to any Investment
Property; and (l) Take any action or pay any sum required of Borrower pursuant
to this Agreement and any other present or future agreements. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and reasonable attorneys' fees incurred by GC with respect to the
foregoing shall be added to and become part of the Obligations, shall be payable
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. In no event shall GC's rights under the
foregoing
-19-
<PAGE> 20
power of attorney or any of GC's other rights under this Agreement be deemed to
indicate that GC is in control of the business, management or properties of
Borrower.
*DURING THE CONTINUANCE OF SUCH EVENT OF DEFAULT
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale or other disposition of the Collateral shall be applied by GC first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by GC in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as GC shall determine in its sole discretion. Any
surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to GC for any deficiency. If, GC, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, GC shall have
the option, exercisable at any time, in its sole discretion, of either reducing
the Obligations by the principal amount of purchase price or deferring the
reduction of the Obligations until the actual receipt by GC of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, GC shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between GC and Borrower, and all of such rights and remedies
are cumulative and none is exclusive. Exercise or partial exercise by GC of one
or more of its rights or remedies shall not be deemed an election, nor bar GC
from subsequent exercise or partial exercise of any other rights or remedies.
The failure or delay of GC to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been fully paid and performed.
8. DEFINITIONS. (As used in this agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner*,
shareholder, director, **officer of such Person, or any parent or subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.
*FIVE PERCENT
-20-
<PAGE> 21
**OR
"AGREEMENT" and "THIS AGREEMENT" means this Loan and Security Agreement and
all modifications and amendments thereto, extensions thereof, and replacements
therefor.
"BUSINESS DAY" means a day on which GC is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE RECEIVABLES" means unconditional Receivables arising in the
ordinary course of Borrower's business from the completed sale of goods or
rendition of services*, which GC, in its sole judgment, shall deem eligible for
borrowing, based on such considerations as GC may from time to time deem
appropriate.
*OR THE LICENSING OR SOFTWARE
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names,
-21-
<PAGE> 22
trade secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation presently
or hereafter pending for any cause or claim (whether in contract, tort or
otherwise) and all judgments now or hereafter arising therefrom, all claims of
Borrower against GC, rights to purchase or sell real or personal property,
rights as a licensor or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance policies and claims
(including life insurance, key man insurance, credit insurance, liability
insurance, property insurance and other insurance), tax refunds and claims,
computer programs, discs, tapes and tape files, claims under guaranties,
security interests or other security held by or granted to Borrower, all rights
to indemnification and all other intangible property of every kind and nature
(other than Receivables)*.
*PROVIDED THAT THE INSURANCE POLICIES DESIGNATED IN THE SCHEDULE SHALL BE
EXCLUDED HEREFROM
"GUARANTOR" means any Person who has guaranteed any of the Obligations.
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"INVESTMENT PROPERTY" means any and all investment property of Borrower,
including all securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or otherwise, wherever
located, and whether now existing or hereafter acquired or arising.
"LIBOR RATE" means (i) the one-month London Interbank Offered Rate for
deposits in U.S. dollars, as shown each day in The Wall Street Journal (Eastern
Edition) under the caption "Money Rates - London Interbank Offered Rates
(LIBOR)"; or (ii) if the Wall Street Journal does not publish such rate, the
offered one-month rate for deposits in U.S. dollars which appears on the Reuters
Screen LIBO Page as of 10:00 a.m., New York time, each day, PROVIDED that if at
least two rates appear on the Reuters Screen LIBO Page on any day, the "LIBOR
Rate" for such day shall be the arithmetic mean of such rates; or (iii) if the
Wall Street Journal does not publish such
-22-
<PAGE> 23
rate on a particular day and no such rate appears on the Reuters Screen LIBO
Page on such day, the rate per annum at which deposits in U.S. dollars are
offered to the principal London office of Bank of America N.T.&S.A. (or its
successor) in the London interbank market at approximately 11:00 A.M., London
time, on such day in an amount approximately equal to the outstanding principal
amount of the Loans, for a period of one month, in each of the foregoing cases
as determined in good faith by GC, which determination shall be conclusive
absent manifest error.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to GC, whether evidenced by this Agreement or any note or
other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by GC in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees, expert witness fees, audit fees, letter of credit fees, loan fees,
termination fees, minimum interest charges and any other sums chargeable to
Borrower under this Agreement or under any other present or future instrument or
agreement between Borrower and GC.
"PERMITTED LIENS" means the following: (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes*; (iv) additional security interests and liens
which are subordinate to the security interest in favor of GC and are consented
to in writing by GC (which consent shall not be unreasonably withheld); (v)
security interests being terminated substantially concurrently with this
Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent**; (vii) liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by liens of
the type described above in clauses (i) or (ii) above, provided that any
extension, renewal or replacement lien is limited to the property encumbered by
the existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; (viii) Liens in favor of customs and
revenue authorities which secure payment of customs duties in connection with
the importation of goods***. GC will have the right to require, as a condition
to its consent under subparagraph (iv) above, that the holder of the additional
security interest or lien sign an intercreditor agreement on GC's then standard
form, acknowledge that the security interest is subordinate to the security
interest in favor of GC, and agree not to take any action to enforce its
subordinate security interest so long as any Obligations remain outstanding, and
that Borrower agree that any uncured default in any obligation
-23-
<PAGE> 24
secured by the subordinate security interest shall also constitute an Event of
Default under this Agreement.
*, OR GOVERNMENTAL FEES, ASSESSMENTS OR OTHER GOVERNMENTAL CHARGES OR
LEVIES, EITHER NOT DELINQUENT OR BEING CONTESTED IN GOOD FAITH BY APPROPRIATE
PROCEEDINGS, PROVIDED THE SAME HAVE NO PRIORITY OVER ANY OF GC'S SECURITY
INTERESTS AND THE BORROWER MAINTAINS ADEQUATE RESERVES THEREFOR IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED.
**MORE THAN 45 DAYS, OR ARE BEING CONTESTED IN GOOD FAITH (PROVIDED SUCH
LIEN IS NOT FORECLOSED)
***; (IX) ANY JUDGMENT, ATTACHMENT OR SIMILAR LIEN, UNLESS THE JUDGMENT IT
SECURES IS NOT FULLY COVERED BY INSURANCE AND HAS NOT BEEN DISCHARGED OR
EXECUTION THEREOF EFFECTIVELY STAYED AND BONDED AGAINST PENDING APPEAL WITHIN 45
DAYS OF THE ENTRY THEREOF PROVIDED THAT, IF THE JUDGMENT IS NOT FULLY COVERED BY
INSURANCE OR EXECUTION THEREOF HAS NOT BEEN SO STAYED AND BONDED, GC SHALL NOT
BE REQUIRED TO MAKE ANY LOANS OR OTHERWISE EXTEND CREDIT TO OR FOR THE BENEFIT
OF BORROWER; (X) LICENSES OR SUBLICENSES GRANTED TO OTHERS NOT INTERFERING IN
ANY MATERIAL RESPECT WITH THE BUSINESS OF BORROWER; AND (XI) LIENS WHICH
CONSTITUTE RIGHTS OF SET-OFF OF A CUSTOMARY NATURE OR BANKER'S LIENS ON AMOUNTS
ON DEPOSIT, WHETHER ARISING BY CONTRACT OR BY OPERATION OF LAW, IN CONNECTION
WITH ARRANGEMENTS ENTERED INTO WITH DEPOSITORY INSTITUTIONS IN THE ORDINARY
COURSE OF BUSINESS
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, documents and all other forms of obligations
at any time owing to Borrower, all guaranties and other security therefor, all
merchandise returned to or repossessed by Borrower, and all rights of stoppage
in transit and all other rights or remedies of an unpaid vendor, lienor or
secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
-24-
<PAGE> 25
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by GC (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by GC on account of the Obligations three Business Days after receipt by
GC of immediately available funds. GC shall not, however, be required to credit
Borrower's account for the amount of any item of payment which is unsatisfactory
to GC in its discretion, and GC may charge Borrower's Loan account for the
amount of any item of payment which is returned to GC unpaid.
9.2 APPLICATION OF PAYMENTS. * payments with respect to the Obligations
may be applied, and in GC's sole discretion reversed and reapplied, to the
Obligations, in such order and manner as GC shall determine in its sole
discretion.
*SUBJECT TO SECTION 7.5, ALL
9.3 CHARGES TO ACCOUNT. GC may, in its discretion, require that Borrower
pay monetary Obligations in cash to GC, or charge them to Borrower's Loan
account, in which event they will bear interest at the same rate applicable to
the Loans.
9.4 MONTHLY ACCOUNTINGS. GC shall provide Borrower monthly with an account
of advances, charges, expenses and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by GC), unless Borrower notifies GC in writing
to the contrary within *days after each account is rendered, describing the
nature of any alleged errors or admissions.
*90
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service, or by facsimile, or by regular first-class mail, or certified mail
return receipt requested, addressed to GC or Borrower at the addresses shown in
the heading to this Agreement, or at any other address designated in writing by
one party to the other party. All notices shall be deemed to have been given
upon delivery in the case of notices personally delivered, or at the expiration
of one business day following delivery to the private delivery service, or one
day after the date sent by facsimile, or *
*UPON DELIVERY IN THE CASE OF NOTICES SENT BY MAIL
-25-
<PAGE> 26
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and GC and supersede all
prior and contemporaneous negotiations and oral representations and agreements,
all of which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
9.8 WAIVERS. The failure of GC at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and GC shall not waive or diminish
any right of GC later to demand and receive strict compliance therewith. Any
waiver of any default shall not waive or affect any other default, whether prior
or subsequent, and whether or not similar. None of the provisions of this
Agreement or any other agreement now or in the future executed by Borrower and
delivered to GC shall be deemed to have been waived by any act or knowledge of
GC or its agents or employees, but only by a specific written waiver signed by
an authorized officer of GC and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by GC on which Borrower is or may in any way be liable, and
notice of any action taken by GC, unless expressly required by this Agreement.
9.9 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of GC.
9.10 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.11 ATTORNEYS' FEES AND COSTS. Borrower shall reimburse GC for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by GC, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any reasonable attorneys' fees and costs
GC incurs in order to do the following: prepare and negotiate this Agreement and
the documents relating to this Agreement;
-26-
<PAGE> 27
obtain legal advice in connection with this Agreement or Borrower; enforce, or
seek to enforce, any of its rights; prosecute actions against, or defend actions
by, Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce GC's security interest in, the Collateral; and otherwise
represent GC in any litigation relating to Borrower. If either GC or Borrower
files any lawsuit against the other predicated on a breach of this Agreement,
the prevailing party in such action shall be entitled to recover its reasonable
costs and attorneys' fees, including (but not limited to) reasonable attorneys'
fees and costs incurred in the enforcement of, execution upon or defense of any
order, decree, award or judgment. All attorneys' fees and costs to which GC may
be entitled pursuant to this Paragraph shall immediately become part of
Borrower's Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.
9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and GC; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of GC, and any prohibited assignment shall be
void. No consent by GC to any assignment shall release Borrower from its
liability for the Obligations.
9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against GC, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by GC, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after* the act, occurrence or omission upon which such claim or
cause of action, or any part thereof, is based, and the service of a summons and
complaint on an officer of GC, or on any other person authorized to accept
service on behalf of GC, within thirty (30) days thereafter. Borrower agrees
that such one-year period is a
-27-
<PAGE> 28
reasonable and sufficient time for Borrower to investigate and act upon any such
claim or cause of action. The one-year period provided herein shall not be
waived, tolled, or extended except by the written consent of GC in its sole
discretion. This provision shall survive any termination of this Agreement or
any other present or future agreement.
*BORROWER LEARNS OF, OR IN THE EXERCISE OF REASONABLE DILIGENCE SHOULD HAVE
LEARNED OF,
9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and GC acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including,"
whenever used in this Agreement, shall mean "including (but not limited to)."
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against GC or Borrower under any rule of construction or
otherwise.
9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of GC and Borrower shall
be governed by the laws of the State of California. As a material part of the
consideration to GC to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement shall,
at GC's option, be litigated in courts located within California, and that the
exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding.
9.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GC EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GC AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GC OR BORROWER, IN ALL OF
THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
-28-
<PAGE> 29
Borrower:
SkillSoft Corporation
/s/ Thomas J. McDonald
By:___________________________
President or Vice President
/s/ Thomas J. McDonald
By:___________________________
Secretary or Ass't Secretary
GC:
GREYROCK CAPITAL,
a Division of NationsCredit
Commercial Corporation
/s/
By:_________________________
SVP
Title:_______________________
-29-
<PAGE> 30
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
Borrower: SkillSoft Corporation
Address: 20 Industrial Park Drive
Nashua, NH 03062
Date: June 18, 1999
This Schedule is an integral part of the Loan and Security Agreement between
GREYROCK CAPITAL, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION ("GC") and
the borrower named above ("Borrower") of even date.
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of (1) or (2)
below:
(1) $5,000,000 at any one time outstanding; or
(2) an amount equal to the sum of the following
(without duplication):
(i) an amount equal to 80% of the amount
of Borrower's Eligible Receivables (as
defined in Section 8 above), plus
(ii) the unpaid principal balance of the Term
Loans made by GC to Borrower up to an
original aggregate principal amount at
any time outstanding of $1,000,000 (the
"Term Loans") and will be evidenced by
the Secured Promissory Note (the "Term
Note") of even date herewith made by
Borrower to the order of GC.
The Term Loans will be made in multiple
disbursements and repayable on the terms set forth
in the Term Note. Amounts outstanding under the
Term Note may be borrowed, prepaid and reborrowed
at any time prior to the Maturity Date.
<PAGE> 31
2. INTEREST
INTEREST RATE (Section 1.2): The interest rate in effect throughout each
calendar month during the term of this
Agreement shall be the highest "LIBOR Rate"
in effect during such month, plus 4.875% per
annum. Interest shall be calculated on the
basis of a 360-day year for the actual number
of days elapsed. "LIBOR Rate" has the
meaning set forth in Section 8 above.
3. FEES (Section 1.3/Section 6.2):
LOAN FEE: $50,000, payable concurrently herewith.
TERMINATION FEE: None.
NSF CHECK CHARGE: $15.00 per item.
WIRE TRANSFERS: $15.00 per transfer.
4. MATURITY DATE June 30, 2000, subject to automatic renewal
as provided in Section 6.1 above, and early
termination as provided in Section 6.2 above.
5. REPORTING Borrower shall provide GC with the following:
(Section 5.2):
1. Annual financial statements, as soon as
available, and in any event within 90
days following the end of Borrower's
fiscal year, certified by independent
certified public accountants acceptable
to GC.
2. Quarterly unaudited financial
statements, as soon as available, and in
any event within 30 days after the end
of each fiscal quarter of Borrower.
3. Monthly unaudited financial statements
as soon as available and, in any event,
no later than 30 days after the end of
each month.
-2-
<PAGE> 32
4. Monthly Receivable agings, aged by
invoice date, within 10 days after the
end of each month.
5. Monthly accounts payable agings, aged by
invoice date, and outstanding or held
check registers within 10 days after the
end of each month.
6. BORROWER
INFORMATION:
PRIOR NAMES OF BORROWER -
(Section 3.2): N/A
---------------------------------------------
PRIOR TRADE NAMES OF
BORROWER -
(Section 3.2): N/A
---------------------------------------------
EXISTING TRADE NAMES OF
BORROWER -
(Section 3.2): _____________________________________________
OTHER LOCATIONS AND
ADDRESSES -
(Section 3.3): N/A
---------------------------------------------
MATERIAL ADVERSE LITIGATION -
(Section 3.10:) NATIONAL EDUCATION TRAINING GROUP, INC. V
SKILLSOFT CORPORATION, ET. AL.
CERTAIN EXCLUDED The following insurance policies:
COLLATERAL Certain insurance policies (nos. RNHLD1013,
(Section 8): Reliance Insurance; 28043644, The New
England; and VIBL015637, CNA) naming C.E.
Moran as insured.
7. COPYRIGHT REGISTRATION COVENANT
(Section 5.8): Borrower agrees promptly, and in any event
not later than 60 days after the date hereof
(the
-3-
<PAGE> 33
"Registration Completion Date"), to have any
of its currently unregistered copyrightable
software, computer programs and other
materials registered with the U.S. Copyright
Office in Washington, D.C. (the "Copyright
Office") and to promptly provide GC with
evidence of such registration. Borrower will,
on an ongoing basis, promptly register any
future unregistered copyrightable software,
computer programs and other materials with
the Copyright Office. Until the Registration
Completion Date Borrower may request Loans
notwithstanding any noncompliance with
Section 2(f) of the Security Agreement in
Copyrighted Works (the "Copyright Security
Agreement") between Borrower and GC (which
Section 2(f) requires registration with the
Copyright Office of any copyright the sale,
licensing or other disposition of which
results in any Receivable (a "Copyright
Receivable") with respect to which any Loan
is requested). Effective the Registration
Completion Date, no Loan request may be made
with respect to any Copyright Receivables if
GC has not made its filing with the Copyright
Office with respect to the copyright giving
rise to such Copyright Receivables.
BORROWER: GC:
SKILLSOFT CORPORATION GREYROCK CAPITAL,
A DIVISION OF NATIONSCREDIT
COMMERCIAL CORPORATION
/s/ Thomas J. McDonald /s/
BY: _________________________________ BY: _______________________________
PRESIDENT OR VICE PRESIDENT
SVP
TITLE: ____________________________
/s/ Thomas J. McDonald
BY: _________________________________
SECRETARY OR ASS'T SECRETARY
-4-
<PAGE> 34
SECURED PROMISSORY NOTE
$1,000,000 Los Angeles, California June 18, 1999
FOR VALUE RECEIVED, the undersigned (the "Borrower") promises to pay to the
order of GREYROCK CAPITAL, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
("GC"), at 10880 Wilshire Boulevard, Suite 1850, Los Angeles, California 90024,
or at such other address as the holder of this Note shall direct, the principal
sum of One Million Dollars ($1,000,000), or, if less, the aggregate principal
amount of the Term Loans made by GC to the Borrower pursuant to the Loan and
Security Agreement between the Borrower and GC dated June 18, 1999 (the "Loan
Agreement"), on the date the Loan and Security Agreement terminates by its terms
or is terminated by either party in accordance with its terms (the "Maturity
Date"). On the Maturity Date the entire remaining unpaid principal balance of
this Note, plus any and all accrued and unpaid interest, shall be due and
payable.
This Note shall bear interest on the unpaid principal balance hereof from
time to time outstanding at a rate equal to the following: The interest rate in
effect throughout each calendar month during the term of this Note shall be the
highest "LIBOR Rate" in effect during such month, plus 4.875% per annum.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed. "LIBOR Rate" has the meaning set forth in the Loan
Agreement.
Accrued interest on this Note shall be payable monthly, in arrears,
commencing on the last day of the month in which the first Term Loan is made
under the Loan Agreement, and continuing on the last day of each succeeding
month. Any accrued interest not paid when due shall bear interest at the same
rate as the principal hereunder.
The principal hereof may be prepaid at any time, in whole or in part,
without any obligation to pay any prepayment fee or premium. Accrued interest on
any principal amount hereof prepaid shall be due on the prepayment date as to
the principal amount hereof prepaid.
Principal of and interest on this Note shall be payable in lawful money
of the United States of America. If a payment hereunder becomes due and payable
on a Saturday, Sunday or legal holiday, the due date thereof shall be extended
to the next succeeding business day, and interest shall be payable thereon
during such extension.
Upon the occurrence of and during the continuance of any Event of Default
(as defined in the Loan Agreement), GC may, at its option, at any time
thereafter, declare
-1-
<PAGE> 35
the entire unpaid principal balance of this Note plus all accrued interest to be
immediately due and payable, without notice or demand. The acceptance of any
installment of principal or interest by GC after the time when it becomes due,
as herein specified, shall not be held to establish a custom, or to waive any
rights of GC to enforce payment when due of any further installments or any
other rights, nor shall any failure or delay to exercise any rights be held to
waive the same.
All payments hereunder are to be applied first to costs and fees referred
to hereunder, second to the payment of accrued interest and the remaining
balance to the payment of principal. Any principal prepayment hereunder shall be
applied against principal payments in the inverse order of maturity. GC shall
have the continuing and exclusive right to apply or reverse and reapply any and
all payments hereunder. Principal and interest becoming due hereunder may, in
GC's discretion, be charged to Borrower's loan account under the Loan Agreement,
and the same shall thereafter bear interest at the same rate as the other Loans
under the Loan Agreement.
The Borrower agrees to pay all costs and expenses (including without
limitation reasonable attorneys' fees) incurred by GC in connection with or
related to this Note, or its enforcement, whether or not suit be brought. The
Borrower hereby waives presentment, demand for payment, notice of dishonor,
notice of nonpayment, protest, notice of protest, and any and all other notices
and demands in connection with the delivery, acceptance, performance, default,
or enforcement of this Note, and the Borrower hereby waives the benefits of any
statute of limitations with respect to any action to enforce, or otherwise
related to, this Note.
This Note is secured by the Loan Agreement and all other present and future
security agreements between the Borrower and GC. Nothing herein shall be deemed
to limit any of the terms or provisions of the Loan Agreement or any other
present or future document, instrument or agreement, between the Borrower and
GC, and all of GC's rights and remedies hereunder and thereunder are cumulative.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of GC, and then only to the extent therein specifically set
forth. If more than one person executes this Note, their obligations hereunder
shall be joint and several.
-2-
<PAGE> 36
BORROWER HEREBY WAIVES, AND GC BY ITS ACCEPTANCE HEREOF WAIVES, THE RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO: (I) THIS NOTE; OR (II) ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GC AND BORROWER; OR (III) ANY CONDUCT, ACTS OR
OMISSIONS OF GC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GC OR BORROWER; IN EACH
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
This Note is payable in, and shall be governed by the laws of, the State of
California.
SKILLSOFT CORPORATION
/s/ Thomas J. McDonald
BY ________________________________
VICE PRESIDENT
/s/ Thomas J. McDonald
BY ________________________________
SECRETARY
-3-
<PAGE> 1
EXHIBIT 11.01
SkillSoft Corporation
Earnings per share calculation
For the period ended January 31, 1998
<TABLE>
<CAPTION>
Unrestricted Class A Common Conversion of convertible
stock Restricted Class A Common stock preferred stock
----------------------------- ------------------------------- ------------------------------
Weighted Weighted Weighted
Shares average Shares average average
outstanding outstanding outstanding outstanding Shares converted outstanding
----------------------------- ------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
October 15, 1997
December 10, 1997 1,900,000 914,815
January 8, 1998 4,000,000 851,852
December 10, 1997 100,000 48,148
December 10, 1997 10,000 4,815
------------------------------------------------------------------------------------------------
Total 2,010,000 967,778 -- -- 4,000,000 851,852
Basic weighted average shares outstanding 967,778 Diluted weighted average shares outstanding 1,819,630
Net loss (824,433) Net loss (824,433)
Loss per share (0.85) Loss per share (0.45)
</TABLE>
<PAGE> 2
SkillSoft Corporation
Earnings per share calculation
For the period ended July 31, 1998
<TABLE>
<CAPTION>
Unrestricted Class A Common Conversion of convertible
stock Restricted Class A Common stock preferred stock
----------------------------- ------------------------------- ------------------------------
Weighted Weighted Weighted
Shares average Shares average average
outstanding outstanding outstanding outstanding Shares converted outstanding
----------------------------- ------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1998
December 10, 1997 1,900,000 1,900,000
January 8, 1998 4,000,000 4,000,000
December 10, 1997 100,000 100,000
December 10, 1997 10,000 10,000
- --------------------------
June 15, 1998 38,889 9,883
July 15, 1998 170,472 15,069
------------------------------------------------------------------------------------------------
2,010,000 2,010,000 209,361 24,953 4,000,000 4,000,000
Basic weighted average shares outstanding 2,034,953 Diluted weighted average shares outstanding 6,034,953
Net loss (2,727,509) Net loss (2,727,509)
Loss per share (1.34) Loss per share (0.45)
</TABLE>
<PAGE> 3
SkillSoft Corporation
Earnings per share calculation
For the period ended January 31, 1999
<TABLE>
<CAPTION>
Unrestricted Class A Common Conversion of convertible
stock Restricted Class A Common stock preferred stock
----------------------------- ------------------------------- ------------------------------
Weighted Weighted Weighted
Shares average Shares average average
outstanding outstanding outstanding outstanding Shares converted outstanding
----------------------------- ------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1998
December 10, 1997 1,900,000 1,900,000
January 8, 1998 4,000,000 4,000,000
December 10, 1997 100,000 100,000
December 10, 1997 10,000 10,000
- ---------------------------
June 15, 1998 38,889 24,505
July 15, 1998 170,472 93,409
August 14, 1998 2,380,953 1,108,937
August 15, 1998 46,833 21,684
September 15, 1998 46,833 17,707
October 15, 1998 46,833 13,857
November 15, 1998 46,833 9,880
December 15, 1998 46,833 6,031
January 15, 1999 46,833 2,053
-----------------------------------------------------------------------------------------------
2,010,000 2,010,000 490,359 189,127 6,380,953 5,108,937
Basic weighted average shares outstanding 2,199,127 Diluted weighted average shares outstanding 7,308,064
Net loss (8,272,541) Net loss (8,272,541)
Loss per share (3.76) Loss per share (1.13)
</TABLE>
<PAGE> 4
SkillSoft Corporation
Earnings per share calculation
For the period ended July 31, 1999
<TABLE>
<CAPTION>
Unrestricted Class A Common Conversion of convertible
stock Restricted Class A Common stock preferred stock
----------------------------- ------------------------------- ------------------------------
Weighted Weighted Weighted
Shares average Shares average average
outstanding outstanding outstanding outstanding Shares converted outstanding
----------------------------- ------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1999
December 10, 1997 1,900,000 1,900,000
January 8, 1998 4,000,000 4,000,000
December 10, 1997 100,000 100,000
December 10, 1997 10,000 10,000
- ---------------------------
June 15, 1998 38,889 38,889
July 15, 1998 170,472 170,472
August 14, 1998 2,380,953 2,380,953
August 15, 1998 46,833 46,833
September 15, 1998 46,833 46,833
October 15, 1998 46,833 46,833
November 15, 1998 46,833 46,833
December 15, 1998 46,833 46,833
January 15, 1999 46,833 46,833
- ---------------------------
February 15, 1999 46,833 42,952
February 16, 1999 2,380,952 2,170,481
March 15, 1999 51,000 38,884
April 15, 1999 64,333 38,031
May 15, 1999 57,667 24,532
June 15, 1999 57,667 14,656
July 15, 1999 57,667 5,098
-----------------------------------------------------------------------------------------------
2,010,000 2,010,000 825,526 654,512 8,761,905 8,551,434
Basic weighted average shares outstanding 2,664,512 Diluted weighted average shares
outstanding 11,215,946
Net loss (7,641,914 Net loss (7,641,914)
Loss per share (2.87) Loss per share (0.68)
</TABLE>
<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) included in or made a part of this
Amendment No. 1 to S-1 Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 4, 1999
